EU will decide at year’s end on Greece’s debt securitization

The European Commission will decide at the end of the year, a month after the redrafted 2006 budget will be submitted to Parliament, whether to accept the securitization of debt owed to the state as a legitimate means to reduce the deficit, European Economic and Monetary Affairs Commissioner Joaquin Almunia announced yesterday in Brussels. Economy and Finance Minister Giorgos Alogoskoufis, who was taking part in the European Council of Finance Ministers (Ecofin), told reporters that resorting to one-off measures, such as the securitization, was inevitable for the 2006 budget but promised this will not happen in 2007. Almunia and Alogoskoufis met yesterday morning to discuss the implementation of the 2005 budget and the government’s plans to bring the 2006 budget to a level acceptable to the EU – below 3 percent of the country’s gross domestic product (GDP). In a press conference afterward, Almunia said that the target set by the EU for the 2005 budget – to reduce deficit as a percentage of GDP by two percentage points – had been attained, even if one did not count the proceeds from the 2005 securitization. As for 2006, he said he expects the Greek government to provide a more detailed report on the budget’s provisions. Asked about the securitization, Almunia said it is up to Eurostat, the EU’s statistics agency, to accept or reject it, but added that, in general, he is not supportive of its use. Alogoskoufis told reporters that, if the 2005 securitization is accepted, then Greece will have reduced its budget deficit by 3 percentage points in a single year – from 6.6 to 3.6 percent of GDP – without negative consequences for the pace of its economic growth. In any case, Alogoskoufis remarked, the major part of this reduction will have been achieved by permanent structural measures, such as reining in public spending and cracking down on inflation. Alogoskoufis said that in order to achieve the goal set by the EU – to reduce the 2006 budget deficit below 3 percent of GDP – and maintain economic growth, it was necessary to add one-off measures to the policy mix. It is obvious the Commission is trying to abolish, or at least minimize, the use of securitization by member states even though it does not violate any laws or regulations. It is probably not excessive to claim that both the Commission and Eurostat are purposely vague on the rules of securitization, allowing themselves to scrutinize every operation, without making clear in advance what is acceptable and what is not. Almunia himself avoided a clear stance on the issue yesterday, saying that the acceptance or rejection of the securitization is a technical issue for Eurostat, which he oversees. The position of Athens is simple: If securitization is rejected, there will be a resort, in 2006, to other one-off measures such as additional dividends from state-owned enterprises or contract extensions. Both these steps, however, must be approved by the Commission. In return, Greece promises to limit itself to structural, long-term measures in 2007. International credit rating agency Standard & Poor’s, in a report published yesterday, also recommended long-term measures to cut the budget deficit and criticized Greece’s resorting to one-off measures. The S&P report concentrates on the country’s public debt, which it considers one of the major factors that can lead to a downgrading of Greece’s credit rating. The report doubts the government’s estimate that the public debt will be reduced to 105.2 percent of GDP in 2006. It says that it will be difficult to reduce it below 106 percent, despite Greece’s high growth rate.

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