The decision by Economy and Finance Minister Giorgos Alogoskoufis to keep the 2006 budget’s public consumption expenditure at this year’s levels demonstrates the government’s determination to bring about genuine fiscal adjustment, i.e. the return of the deficit below 3 percent of the gross domestic product by the end of 2006. It intends to do so without imposing new taxes and by containing expenses. While applauding the government’s decision, serious economic observers add that for expenses to be cut to a level that would reduce the deficit, the state’s role in the Greek economy must shrink. Public spending, including state-run companies and corporations, exceeds 50 percent of GDP, forcing PASOK’s front-bencher Anna Diamantopoulou to claim that Greece is «the last socialist country in Europe.» The same observers insist that public agencies and enterprises with little social function must be shut down and that the state must withdraw from the business sector, both to cut spending and because the structure and the functioning of state administration make it economically inefficient and hamper the improvement of the whole economy’s competitiveness. In its latest report on competitiveness, the Center for Planning and Economic Research (KEPE) says the following: «The organizing structure and functioning of the public sector in Greece is inefficient and resource-wasting. Despite reforming initiatives, the modernization and improvement of the state’s organizing sectors have not materialized. Its structure remains problematic and its staff is not properly distributed and lacks the essential motives to perform better.» It continues by noting that «management methods and processes remain obsolete, without using modern and efficient administrative systems. They therefore cannot contribute to developing the economy and serving the citizen. There also seem to be some inherent difficulties in legislating a more permanent administrative structure according to real meritocratic criteria and the actual needs of every administrative domain.» Political interventions in the public administration do not help either, the report suggests. «Yet while the efficiency of the public administration is very low, its costs tend to rise and citizens and enterprises can sense the poor performance and service,» KEPE stresses. The ruling party’s popular election promise to «re-establish the state,» has hardly been implemented thus far, while the public administration, through its ineffectiveness and waste of resources, is also hampering the private sector, when it does not make it state-funded and corrupt. KEPE adds that «large sections of Greek economic activity, such as energy, postal services, public transport, health, higher education, culture, social security, research and large infrastructure projects, are still state-controlled and without serious competition by the private sector. Thus, productivity and efficiency levels of the public sector also have an impact on the competitiveness of the private sector and the country in general.» Consequently, only a broad program of privatizations can secure the needed fiscal adjustment and improve productivity.