A large revenue hole to fill in

Whether he was unofficially notified that there is no chance of approving his securitization plan as a legitimate means of reducing the budget deficit or trying to play the good sport in hopes that, in the end, he will get his way, Economy and Finance Minister Giorgos Alogoskoufis has decided not to include the proceeds from the securitization of outstanding debt to the state in either the 2005 or the 2006 budget. In essence, Alogoskoufis decided to dig the hole into the budget himself before others, namely Eurostat, the European Union’s statistics agency, did the dirty job for him. «There will be a footnote in the budgets saying that securitization proceeds will be included if they are approved by Eurostat and the EU,» Alogoskoufis told reporters. Without the securitization proceeds, the 2005 budget will show a deficit equal to 4.4 percent of GDP, Alogoskoufis said – the European Commission’s estimate is 4.6 percent – while next year’s deficit has been estimated by the Commission at 3.6 percent, when Alogoskoufis was projecting a deficit of 2.8 percent. He recently claimed that the 2006 deficit, including the securitization proceeds, would reach 2.6 percent and yesterday insisted the deficit, without the securitization, would still be below the 3 percent limit imposed by Europe’s Stability and Growth Pact. Asked whether Greece would ask for an extra year to reduce the deficit below 3 percent, Alogoskoufis appeared to oppose the idea. If Greece fails to reduce the deficit to below 3 percent of GDP, as it has promised its EU partners, it may incur heavy fines and be subject to a much heavier monitoring of its finances, including specific spending targets. It is unlikely that Greece will be treated as lightly as France and Germany, whose constant violation of the deficit limit has gone unpunished. Besides its reduced political leverage, Greece has against it its high public debt level, now the highest in the EU, and the fact that it did almost nothing to reduce it despite enjoying high growth levels. France and Germany, at least, can claim that they are trying to spend their way out of recession. Greece is also under greater scrutiny for having revised retrospectively its deficit figures dating back to 1997 and coming up with deficits greater than initially reported. When planning for the 2005 budget, Alogoskoufis had not included any securitization plans. It was his failure to raise revenues to levels anywhere near near the target he had set (over 11 percent, later revised to 10.2 percent) that let him resort to this method. This, however, provoked the ire of EU Economic and Monetary Affairs Commissioner Joaquin Almunia, who, in an uncharacteristically blunt manner urged the government, during a press conference in Athens, to adopt more structural measures to shore up its public finances and avoid one-off measures like securitization. Almunia has insisted since that it will be up to the Eurostat to approve or reject securitization, but has added that he personally opposes it. Almunia is the commissioner overseeing Eurostat’s operations. Eurostat is not expected to rule before mid-December but the government is pressed for time as it must submit the, now twice revised, 2006 draft budget to Parliament on November 20. The budget is traditionally voted on by the Parliament during the last day before the Christmas recess. Alogoskoufis has promised to reduce the 2006 deficit without imposing new taxes. That means a redoubled effort to crack down on tax evasion next year. This was, however, supposed to happen this year and it did not.

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