ECONOMY

2006 deficit will be below 3 pct

Greece is determined to shrink its budget deficit below the European Union’s 3 percent cap next year even without any securitization proceeds, the government’s top economic adviser said yesterday. Athens withdrew its plan to issue government paper against uncollected taxes to plug this and next year’s budget holes days before it releases its 2006 budget as a key approval by EU statistics agency Eurostat is still pending. «We remain strongly committed to bringing the deficit below 3 percent in 2006 to get out of the excessive deficit procedure,» Ploutarchos Sakellaris, chairman of the Council of Economic Advisers, a government-appointed panel, told Reuters in an interview. Greece faces EU sanctions if it doesn’t rein in its budget deficit after it revealed it reported underestimated deficit figures for years and joined the eurozone in 2001 with a deficit over the EU limit of 3 percent of gross domestic product. The final 2006 budget will now instead count on other one-off measures to shore up public finances, including increased dividends from public sector companies and utilities and concession contract extensions, along with spending cuts and a clampdown on tax evasion. «Next year’s budget will not include new tax measures, the fiscal improvement will not come from new taxes,» Sakellaris said. «We believe revenues will be boosted by a clampdown on tax evasion, electronic cross-checking.» In its draft 2006 budget the government had counted on securitization proceeds of 2 billion euros – about one percent of gross domestic product – for a fast reduction of the deficit to 2.6 percent to avoid EU sanctions. EU concerns cut plan But Greek policymakers trimmed the plan by half after concerns from Brussels and an urging by EU Monetary Affairs Commissioner Joaquin Almunia to opt for structural measures of a more permanent nature. Sakellaris said he was confident Eurostat would approve the securitization procedure in the end. «It’s very likely it will be approved. We used past experience as our guide, following the same formula as Portugal, whose securitization was approved in 2003. But since the decision is still pending, these revenues could not be included in the budget,» he said. But even without securitization, Greece will show fiscal improvement that should please Brussels, with this year’s deficit cut by 2.2 percentage points to 4.4 from 6.6 percent of GDP in 2004, when it hosted the Olympics. «With the 2005 deficit down to 4.4 percent (without securitization) we have more than met the EU Commission’s desire to see fiscal improvement. Brussels was asking for a deficit reduction of 1.9 percentage points,» he said. Sakellaris said the government’s policy mix has aimed for a mild fiscal adjustment in order to sustain the economy’s high growth rates, noting that most of the belt-tightening impact is taking place this year and will be less felt in 2006. «We managed to maintain growth of at least 3.6 percent while complying with the EU Commission’s recommendations. Economic growth was sustained because the markets trusted us and also because of our structural reforms,» he said. Greece’s 180-billion-euro economy expanded at a healthy 3.7 percent annual clip in the third quarter, continuing to outperform the broader eurozone as a whole, helped by tourism and shipping.