Progress report to be sent to Commission this week
The government is expected to submit the first of three biannual reports on the state of the Greek economy to the European Commission on Thursday. The reports have been demanded as part of the European Union’s close monitoring of the Greek economy due to its excessive deficits. The third and last of those reports will be submitted in October 2006, at a time when Greece is supposed to have got its finances back into shape by reducing the budget deficit to a level below 3 percent of its gross domestic product (GDP). Failure to do so would result in continued close monitoring, a possible fine and another cycle of biannual reports. The government’s report will confirm that the 2005 budget deficit will stand at 3.6 percent of GDP, with the controversial aid of securitization of debt owed to the government. Without the securitization, the 2005 deficit would reach 4.6 percent of GDP, down from 6.6 percent in 2004. The deficit target for 2006 is 2.6 percent of GDP, safely within the EU requirement. It will also be the most difficult to achieve if the European Commission agrees with European and Monetary Affairs Commissioner Joaquin Almunia, who insists on enduring deficit-cutting methods and rejects securitization as an option. On a recent visit to Greece, Almunia had said he could accept securitization as a stopgap measure for 2005, when the government failed to reach its revenue growth target, but was opposed to its continued use in 2006. The report by the Ministry of Economy and Finance will serve as the basis for the Commission’s autumn forecasts, which will be published in mid-November. Economy and Finance Minister Giorgos Alogoskoufis will submit to Parliament a redrafted budget, taking into account Almunia’s observations, on November 21. The Council of EU Finance Ministers will then examine both the Commission forecasts and Greece’s 2006 budget, either in December or January. The government has repeatedly declared it has preferred a gradual approach to deep reforms. In this way, it has avoided social conflict but has been forced to resort to tricks, such as the securitization, that have called into question its commitment to fiscal reform. The government has already found out that, without a real commitment to reform, it is difficult to cut public spending. Yesterday, the Bank of Greece published figures about the deficit, which, on a cash basis, reached 10.69 billion euros, or 5.9 percent of GDP, during the first three quarters, compared to 11.22 billion (6.4 percent of GDP) during the same period in 2004. On the one hand, this is a positive development. On the other, the slight decrease shows that a large part of public spending remains out of control. The government is prepared to extend spending cuts to public utilities, which, although nominally independent companies, are being aided through the state budget. However, the ministry’s efforts to cut costs there have been fiercely opposed. The Bank of Greece also published figures that showed housing and consumer loans continue to expand at a very fast annual pace of close to 30 percent.