Ecofin decides how strict to be with Greece

Economy and Finance Minister Giorgos Alogoskoufis will today put the government’s plan for restoring the country’s public finances to acceptable conditions before his European Union colleagues in Brussels. Ecofin, the council of European finance ministers, is expected to demand that Greece take strict measures that will start bringing the public deficit down to the prescribed limit of 3 percent of gross domestic product (GDP), and to grant the government a two-year time limit to achieve the target, as recommended by the European Commission. Following a government-initiated fiscal revision, Greece’s fiscal deficit in 2004 is estimated to have been catapulted to around 6 percent of GDP, against an initial 1.2 percent envisaged in the budget drawn by the previous, PASOK government. The country’s public debt is also estimated to exceed 112 percent of GDP. If Ecofin finds that the measures included in the Greek budget for reducing the deficit are inadequate, the European Commission has said it will submit new recommendations next month for additional measures that will put the country’s finances under close surveillance, according to Article 104, Paragraph 9 of the Maastricht Treaty, on excessive deficits. A favorable factor for Greece at Ecofin, apart from an amenable stance by France and Germany which have had fiscal problems of their own in recent years, is the current, fluid climate in the EU as regards the search for common criteria for reforming the Stability and Growth Pact, which is also on the agenda. In a letter to Ecofin yesterday, former PASOK economy ministers Yiannos Papantoniou and Nikos Christodoulakis reiterated their view that the overshooting of the accounting deficit beyond 3 percent of GDP is mainly due to the decision of the new Greek government to change the recording of defense expenditure from a «delivery» basis to a «disbursement» basis. «In this way, it is deliberately seeking to place an accounting burden on the economic performance of the PASOK government and, correspondingly, lighten its own future fiscal management,» they said. «It is obvious that Ecofin’s recommendation that public finances not become the object of political expediencies related to the electoral cycle did not find a field of application in Greece’s case.»