ECONOMY

No EU sanctions seen

Greece is unlikely to face disciplinary action for past deficits, European Commission sources said yesterday, after it was revealed that the country’s budget deficit exceeded the limit set by the Maastricht Treaty for entry into the eurozone during the years leading up to its admission, in June 2000. In fact, Greece’s budget deficit has never fallen, over the past decade, below 3 percent of its gross domestic product (GDP), according to revised figures presented last night by Economic and Monetary Affairs Commissioner Joaquin Almunia, during the meeting of the Eurogroup, the finance ministers of the 12 eurozone member states. Eurostat, the European Union’s statistics agency, recently investigated the budgets for 1997, 1998 and 1999, after the recently elected conservative government admitted that deficits had exceeded the 3 percent limit each year since 2000, contrary to what the previous, Socialist government had reported. Eurostat’s provisional findings was that the 1997 budget deficit stood at 6.44 percent of GDP, declining to 4.13 percent in 1998 and 3.38 percent in 1999. It is the latter figure that is the most controversial, since it was on the basis of the reported 1999 deficit, declared then to equal 1.8 percent of GDP, that Greece was admitted into the eurozone. The Commission made it clear that Greece did not face exclusion from the eurozone for supplying bogus data. «With regard to… Greece’s joining the eurozone, our legal service’s view is that there is no possibility to review this subject,» European Commission spokesman Gerassimos Thomas told a news briefing yesterday. «Greece’s admission to the eurozone was done on the basis of the convergence report which was established at the time and on the basis of figures and the statistical methodology applied at that time. It wasn’t in question at that time,» he added. The Commission’s response shows that it is also highly unlikely that Greece will be taken to the European Court for misleading Eurostat. Market experts said that with the Stability and Growth Pact, the set of rules governing eurozone membership, already in disarray, there is little willingness to impose sanctions of any kind on Greece for its past transgressions. However, Eurogroup could decide to impose strict deadlines on Greece toward bringing its deficit below the 3 percent level. «It’s too long ago and too many people have invested too much in the euro process to start pointing fingers,» Colin Asher, an economist at Nomura International in London, told Bloomberg news service. «I don’t think there are going to be tremendous ramifications (for Greece),» he added. In avoiding sanctions against Greece, the Commission may also be acting to protect itself, and Eurostat, from charges of insufficient oversight. There is, however, a widespread sense that the current government’s unveiling of higher deficits was, at least in part, a political ploy aimed at discrediting its predecessor’s record and designed mostly for domestic consumption. The government’s attempt last month to minimize the scope of Eurostat’s audit of the pre-2000 budgets was widely seen as an indirect admission that the «audit» of public finances had spun out of control, producing unintended consequences. According to some reports, European Commissioner Stavros Dimas, an appointee of the present government, insisted that the Commission’s report on the Greek deficits in 1997-99 state that the upward revision was partly due to a change in accounting methods and that the application of the methods followed by the Greek government would also place Spain and Portugal in the position of having joined the euro area with excessive deficits. Today’s Ecofin session, the meeting of finance ministers from all 25 EU member states, will discuss Greece’s 2004 deficit, officially expected to reach 5.3 percent of GDP, and the promise by Economy and Finance Minister Giorgos Alogoskoufis, made at an earlier meeting, to lower the deficit to 2.8 percent next year. No specific decision is expected, pending a final Commission report on the 2005 budget, which is still at the draft stage. Alogoskoufis will reveal the final budget draft on Thursday. Thus, Ecofin ministers are not expected to have a final say on whether Greece’s budget goals are attainable until their next meeting, on December 7. It is, however, expected that the budget will be closely scrutinized by the Commission. Skepticism has already been expressed in Brussels over the feasibility of lowering the deficit to the degree stated by Alogoskoufis. The premise of a 3.9 percent growth rate for 2005 has already been criticized as overly optimistic. Besides, the Commission has predicted that the 2004 deficit will be at least 5.5 percent of GDP. It is said that the Commission will give Greece until 2006 to bring its budget deficit below 3 percent. This is an indirect way of saying that Alogoskoufis’s promises are seen as too optimistic. On the other hand, the government would probably prefer to be given a longer grace period rather than to be taken on its word. In the latter case, the other members would probably demand a strict timetable for implementation of the 2005 budget, along with deep spending cuts that, were they to be implemented, would damage the government’s popularity. The precedent of France and Germany works in favor of a longer grace period. But then, again, these countries have had the excuse of low growth rates.