ECONOMY

Commission lauds Greek effort

Brussels – The European Commission yesterday approved Greece’s updated Stability and Growth program and praised the government for rigorously implementing the 2005 budget. «The Greek government must be praised, not only for implementing the 2005 budget with rigor, but also for announcing additional measures for this year. Taking into account the existing risks, I welcome its commitment to present a budget for 2006 in which the deficit would be brought below 3 percent of GDP,» said Joaquin Almunia, European commissioner for economic and monetary affairs. The government announced last week it is raising all three brackets of value-added tax to 19, 9 and 4.5 percent, from 18, 8 and 4 percent, respectively, hoping to make up for lagging revenue. As a result, said the Commission, «the European Commission today concluded that Greece is taking effective action to reduce its deficit below 3 percent (of GDP) in 2006, consistent with the Council (of Finance Ministers) decision of last February. The Greek stability program for 2004-2007 shows the Greek deficit falling to 3.7 percent of GDP in 2005 and to 2.9 percent in 2006, after having peaked at 6.1 percent last year. The budgetary strategy is based on a mix of revenue-enhancing measures and expenditure retrenchment, allowing for a primary surplus of 0.7 percent of GDP in 2005. (A few weeks ago, the Commission forecast that Greece’s budget deficit would fall to 4.5 percent of GDP in 2005 and 4.4 percent in 2006. This was before the government announced its package of indirect tax rises on March 29.) What prompted the Commission’s praise was the government’s commitment to tackle most of the necessary deficit reduction in 2005. It is noted that Greece’s updated Stability program aims to reduce the budget deficit to 2.4 percent of GDP in 2007, thus achieving an overall deficit reduction of 3.7 percentage points within three years. Achieving this goal requires going from a primary deficit equal to 0.4 percent of GDP to a primary surplus of 1.8 percent this year, 2.7 percent in 2006 and 3.3 percent in 2007. However, the Commission also expressed some reservations about the program. «In the Commission’s view a part of the official revenue and expenditure projections would appear to be on the optimistic side, entailing the risk that deficits may turn out higher than planned. Moreover, on 18 March Eurostat expressed reservations about the 2004 deficit figures, underlining the possibility of upward revisions,» it says. The Commission specifically argues that the government’s forecast of a 16 percent decline in public sector consumption and a significant rise in revenue are too optimistic. The government disagrees, especially on the latter. Slower-than-expected growth may also jeopardize the Stability program’s targets. «Against a slowing yet still strong rate of projected economic growth, the budget deficit net of cyclical factors is however set to stay above the 3 percent of GDP reference value over the program period,» the Commission says. The Commission also makes a series of general recommendations. It «sees appropriate to enhance the efforts aiming at… controlling below-the-line operations, and to improve the collection and processing of general government data in collaboration with Eurostat.»