Despite the serious difficulties that the government is facing in the drafting of the 2006 budget, it is unlikely to change its strategy of moderate fiscal adjustment which would have meant new tax burdens. But largely as a consequence of this moderation and despite the government’s current claims, Greece will not manage to achieve the European Union-mandated reduction of its public deficit to below 3 percent of gross domestic product (GDP) in 2006. The European Commission yesterday made a projection of 3.8 percent for 2006. This will inevitably lead the government into a new compromise with the European Commission for an extension of the deadline for a return to fiscal propriety to three years, as in Portugal’s case. Maintaining this moderate fiscal adjustment strategy allows for optimism that the economy will keep growing enough to let the living standards of the vast majority of the population to continue to improve. I read in the National Bank of Greece’s economic analysis bulletin the other day that the growth rate is projected to stay above 3 percent this year and next (3.5 and 3.2 percent, respectively) when it is nowhere above 1 percent in the eurozone; inflation will fall from 3.6 percent this year (where it has climbed exclusively due to the higher oil prices) to 3.2 percent in 2006; unemployment will decline to 9 percent, and exports, tourism and shipping will continue to bolster the economy. I have said before that if the prime minister had given his economic ministers specific timetables and targets for structural changes in the economy, investment in energy and new public projects, the economy might now have been growing at 5 percent annually. Unfortunately, however, the government has been moving at a subdued pace and Economy and Finance Minister Giorgos Alogoskoufis was burdened with all the miserable deficits left behind by the previous government. Nevertheless, no one can deny that despite the delays and the mistakes, this government: – is projected to reduce the public deficit from 6.6 percent last year to 4.4 in 2005 with permanent structural measures. – has managed to keep the growth rate at around 3.5-3.6 percent when all international organizations were predicting a decline to below 3 percent. – has kept the rise in primary spending to below the GDP growth rate, which means that the public sector is at last shrinking. – can claim a rise in private investment, thanks to tax and investment incentives. – is borrowing at reasonable rates (only slightly above Italy’s).