Brussels uses Greek fiscal deficits as political tool

The government today is due to send the European Commission its report on how it is complying with the recommendations that the Economy and Finance Ministers’ Council (Ecofin) issued in February, when it placed Greece under a strict regime of fiscal supervision. The purpose of the measure was for Greece to rein in its public deficit to below the prescribed limit of 3 percent of gross domestic product (GDP) by the end of 2006. According to Economy Ministry estimates, incorporated in the report, the deficit will be reduced from 6.6 percent in 2004 to 4.6 percent this year with the help of permanent expense-cutting measures, and to 3.6 percent with the securitization of overdue tax debt. The target for 2006 is 2.6 percent, with further structural measures and more securitization. The Commission will issue its autumn report on the economies of the member states on November 17. Sources in Brussels say the report will be unfavorable for Greece, as the Commission has not taken into account the planned securitization for next year and will predict a deficit above the threshold, at 3.6 percent, for next year. This stance was already indicated by Economic and Monetary Affairs Commissioner Joaquin Almunia on his visit to Athens in September, when he emphasized the need for permanent fiscal measures. A difficult and hard, therefore, phase of negotiations begins between the government and the Commission. Most probably, Ecofin will be called on to provide a solution at its January session. And this solution will be political par excellence, for our problem is essentially political, not economic or technocratic. Reducing a budget deficit from 6.6 percent to 2.6 percent within two years can only mean violent adjustment, with the adoption of harsh and unpopular measures that mean a serious deterioration in the populace’s standard of living. Such measures seriously undermine social cohesion and no committee of technocrats can ever be legitimate in demanding their adoption from an elected government, particularly when this government has already adopted serious structural measures (including a stricter incomes policy) and has reduced the deficit by 3 percentage points. It should not be up against the wall for not making it 4 percentage points. In the last 20 years, no European country has achieved such a sharp cut in its deficit within two years. Therefore, Economy Minister Giorgos Alogoskoufis is right in making no secret of his intention to refer the matter to Ecofin, if need be, and ask for a political decision. Besides, the game now being played in Brussels is political par excellence; the Commission is exhausting its severity with Greece, wishing to send a message of fiscal discipline to the Union’s big and powerful partners that are presently in a situation of fiscal derailment. The tactic is reminiscent of the Greek proverb «Beating the saddle to spur the mule forward.» And who might the mule(s) be? Germany, primarily, which is projected to report a deficit of around 4 percent for the fourth consecutive year, but also Italy with 4.6 percent, France with 3.4 percent and Portugal with 4.7 percent. So, is the Commission legitimized in threatening Greece at gunpoint while discussing giving Germany a 2007 deadline to bring its deficit back to Stability Pact-prescribed levels? In an article in Focus magazine, published on Monday, Peer Steinbruck, the SPD member considered most likely to become finance minister in the new German government, said: «The fiscal situation is extremely problematic. One could describe it as dramatic. A series of unpleasant and unpopular measures must be adopted.» Unfortunately, here in Greece in the next few weeks, instead of informative articles we shall see headlines like «Commission slaps Alogoskoufis!»

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