Commission will make public recommendations on deficit

Brussels – The European Commission is expected to publish today its conclusion that Greece’s budget deficit will also exceed 3 percent of the country’s GDP during 2005, without however calling for closer monitoring of the government’s implementation of the budget. Specifically, the Commission is expected to recommend to the European Council the application of Article 104, Paragraph 8 of the Maastricht Treaty that established the European Union. (Article 104.8 states the following: «Where it establishes that there has been no effective action in response to its recommendations within the period laid down, the Council [in this case, the council of finance ministers, or Ecofin] may make its recommendations public). It is evident that this paragraph is simply a procedural one, announcing the fact that Greece has failed to take action to lower its deficit to below 3 percent of GDP, despite the warning provided according to Article 104, Paragraph 7. (Article 104.7 states: «Where the existence of an excessive deficit is decided according to Paragraph 6, the Council shall make recommendations to the member state concerned with a view to bringing that situation to an end within a given period. Subject to the provisions of Paragraph 8, these recommendations shall not be made public.») The warning was given to the government last July and the government had until the previous month to show that the new budget contained measures to restore the deficit to within acceptable limits. The Commission decision will mention that, though the government expects to bring the deficit down to 2.8 percent of GDP in 2005 from an estimated 6 percent in 2004, its own estimate is that the deficit will reach 3.6 percent instead. Why the difference? First, the Commission estimates that debt principal repayments will be 0.2 percent (of GDP) higher than the government’s own estimate. Second, while the government forecasts that the GDP will grow by 3.9 percent in 2005, the Commission says growth will be 3.3 percent. Third, the Commission believes that some of the fiscal adjustment measures the government has proposed will have less of an impact on the economy. For example, it believes employment will grow by 1 percent; not 2 percent, as the government says. Finally, the Commission argues that «the significant reduction in public investment will further hurt the already low absorption rate of community funds». Besides, the Commission does not believe that the government will be able to make deep cuts in wage and welfare expenditures, arguing from past experience. As a result: «the measures announced for 2005, although partly offsetting the (fiscal) slippage in 2004, do not ensure reduction of the general government deficit below 3 percent in 2005,» the Commission will remark, adding that «nothing» has been done to rein in public debt. According to reliable sources, the Commission will refrain from demanding that specific measures be taken within a strict timetable.