Commission nods at Greece’s mended ways

The Greek economy is back on the right track but the government must remain vigilant into 2006 should the need for further measures arise, the European Commission says in an opinion paper on the government’s updated Stability Program – submitted on March 21, and to be released on Wednesday. The report considers that the target of bringing the public deficit below 3 percent of gross domestic product (GDP) in 2006 is perfectly attainable, on two conditions: first, the unwavering observance of budget provisions, and second, the readiness of the Finance Ministry to adopt additional measures if necessary. The Commission calculates that without the package of additional tax measures announced earlier this week, the deficit would only fall (from the estimated 6.1 percent last year) to 4.6 percent in 2005 and 4.4 percent in 2006, instead of the prescribed 2.9 percent. The package is expected to further reduce the deficit by 985 million euros, or 0.55 percent of GDP, in 2005 and by 1,655 million, or 0.9 percent, in 2006. The Commission, however, appears guarded in its forecast of the economic growth rate, on which the attainment of such targets greatly depends, predicting 2.9 percent for 2005 and 3.1 percent for 2006, instead of an earlier estimate of 3.3 percent. It may be noted, however, that its forecasts have proved overtly pessimistic in the past. The report also adds a warning that should global economic developments diverge from current forecasts, the Greek indicators will also diverge, hence the need for readiness to adopt further measures. Further, it notes that the government’s Stability Program contains only scant reference to the medium-term target of eliminating the deficit. The Commission again sounds a warning bell for the country’s need to solve its social insurance predicament, saying that «it is seriously in danger» as regards the viability of its public finances due to the aging of its population. In conclusion, the Commission recommends to the Economy and Finance Ministers Council (Ecofin) that Greece’s updated Stability Program be approved as compatible with the country’s obligations, but that it also be accompanied by certain measures. The first is the «application of the required measures of a permanent character that will lead to the correction of the excessive deficit in 2006.» Second, the cyclically adjusted deficit should be reduced annually by at least 0.5 percent of GDP from 2007, preferably via measures for containing primary expenses. Third, with the identification of factors that contribute to debt other than borrowing. Further, the Commission calls for control of spending on pensions and «an improvement in the collection and processing of statistical data in cooperation with Eurostat.»

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