Securitization strategy could backfire asEU Commissioner Almunia expresses doubts

The securitization of debt owed to the state is proving far trickier than expected after European Economic and Monetary Affairs Commissioner Joaquin Almunia expressed reservations about the procedure as a means to increase revenue in the 2005 and 2006 budgets. The securitization is to provide revenue of 1.8 billion euros in 2005 and 2006 and will be instrumental in lowering the budget deficit from 6.6 percent of Greece’s GDP in 2004 to 3.6 percent in 2005 and 2.8 percent in 2006. Almunia’s careful expression of skepticism has raised concerns at the Ministry of Economy and Finance. However, Minister Giorgos Alogoskoufis appears at least publicly confident that Eurostat, the European Union’s statistics agency, and the European Commission will approve the procedure. «Mr Almunia said he would prefer measures of a permanent nature (to lower the deficit), but we all understand that such measures take some time to bear fruit and have far greater consequences for growth and social cohesion,» Alogoskoufis said. «We have made a specific choice, compatible with Eurostat’s rules and I believe that this choice will be finally approved by the European Commission. Of course, securitization is not a permanent solution to our fiscal problems; however, tackling tax evasion and excess spending in the public sector takes time.» Earlier, Almunia appeared to cast doubt on the government’s ability to meet the 2005 deficit target of 3.6 percent of GDP. «Although the government has again confirmed the deficit target of 3.6 percent of GDP for this year, cash data until August suggest that further efforts are still needed before the end of the year to compensate the effects of tax shortfalls and expenditure overruns,» Almunia said. The commissioner also warned that Greece faced a future explosive situation with its debt if it did not initiate social security reform immediately. «Unless adequate reforms take place, pension outlays, which now amount to 12 percent of GDP, could attain more than 22 percent in 2050,» Almunia warned. «In other words, unless corrective action is taken now to reverse current trends in pensions and healthcare, the debt will move on to an explosive path.» Almunia recommended action to eliminate labor market rigidities that impede growth and result in high structural unemployment. Greece is due to present the European Commission with a report on its public finances next month and Almunia said he hoped the deficit would be reined back to below the 3 percent allowed by the growth pact by the end of next year.