ECONOMY

Six crucial months are coming for Greece’s economic recovery

The councils of Economy and Finance Ministers of the EU (Ecofin) and the eurozone (Eurogroup) endorsed this week the revised Stability and Development Program of the Greek economy for the 2005-2007 period. Though this approval had been expected, after earlier positive comments by the European Commission on the Greek program, it gains special value within the context of the current crucial political and economic conjunction and will certainly affect developments directly. Indeed this endorsement means in practice that for at least six months the rift between Athens and Brussels is closing. This rift, which opened in October when the European Union openly disputed the new government’s ability to control public finances, cost our country dearly economically and politically. On the economic level, we should note firstly Greece’s being referred to the strict procedures of Article 104, Paragraph 9 for an excessive deficit, which extended to a downgrade of the country’s credit by Standard & Poor’s and by Fitch; secondly, this created uncertainty in the business climate ahead of new tax measures and the like, which deprived our economy of many investments which it either canceled or postponed. Yet the greatest damage was done on a political level, where the credibility of the government was seriously hurt, as it was seen to be forced by the Commission to impose new taxes (VAT, cigarettes, etc). At the same time, the opposition, far from being accused of the large deficits it had bequeathed, took advantage of the Commission’s pressures to present the country as being under surveillance, to the present government’s discredit. The fact, therefore, that this rift, with the multiple wounds it opened, is finally closed, even for just six months, allows the government a grace period to take a deep breath. If this is used correctly by Athens, by pushing through the appropriate structural reforms and more importantly by taking measures toward steadying expenditures and revenues, it will lead to the normalization of Athens-Brussels ties, proving Economy and Finance Minister Giorgos Alogoskoufis right; he had proclaimed that the government will manage by November to take the country out of the excessive deficit procedure. If the Economy Ministry has worked well until November, when the 2006 budget is to be submitted, and revenues have bounced back to growth rates according to the three-year program, while expenditures have been reined in as much as possible, then the Commission will have no reason to call for new measures. It will instead be forced to accept that the government, with its policy for containing tax evasion and limiting expenditures, has all the guarantees for reducing public deficit below 3 percent by the end of 2006. The government, then, will have six more crucial months ahead during which it has to complete this round of its development and stabilization measures. This is essentially the fertile period in which it must convince Europe that Greece is not the black sheep. Because should, God forbid, the Commission decide in November that the 2006 budget is not realistic and the government must take new measures, then new conditions of economic and political crisis will be created. I believe Prime Minister Costas Karamanlis and Alogoskoufis are fully aware of how crucial the next six months are. They must not waste a single day in taking the decisions and measures required. The Economy and Finance Ministry must be at the center of changes in administrative and direction if we want to beat tax evasion and contain expenditures.