ECONOMY

Commissioner promised a deficit below 3 pct in 2006

Economy and Finance Minister Giorgos Alogoskoufis yesterday met with European Economic and Monetary Affairs Commissioner Joaquin Almunia to discuss the 2006 budget, which the government redrafted twice before submitting to Parliament on November 21. Alogoskoufis reassured Almunia that the government will stick by the commitment it made to its EU partners to bring the budget deficit to a level lower than 3 percent of the country’s GDP. Specifically, the draft budget calls for a 2006 deficit equal to 2.6 percent of GDP. Both the European Commission and the Organization for Economic Cooperation and Development (OECD) have cast doubt on the government’s ability to achieve this target. The budget draft also estimates that total debt will be reduced to 104.8 percent of GDP, the growth rate will accelerate to 3.8 percent and the unemployment rate will drop by about half a percentage point. Greece, France, Germany, Italy and Portugal have all been targeted by the Commission over their excessive deficits. In order to gain leverage over the three bigger countries, the Commission is certain to impose a fine on Greece if it fails to reach the 2006 budget’s target. In January 2006, Alogoskoufis will have to convince his colleagues in the European Council of Finance Ministers (Ecofin) that the budget, which will be voted on in the Greek Parliament on the last day before the Christmas recess, is a realistic one that can be successfully implemented. Alogoskoufis’s main argument is that Greece’s fiscal policy – following his controversial and largely politically motivated «auditing» of state finances – is now reliable. He will also argue that the government succeeded in reducing the budget deficit from 6.6 percent of GDP in 2004 to 4.3 percent in 2005, notwithstanding critics’ arguments that the lower deficit merely reflected the end of spending for the Athens Olympics. As for the permanent structural measures demanded by the Commission, Alogoskoufis will point to the draft bill tightening spending by public utilities, the abolition of permanent job status enjoyed by utilities’ employees, as well as reform measures affecting the labor market and bank employees’ money-losing auxiliary pension funds. Further reforms include privatizations and the extension of Public-Private Partnerships beyond a few big infrastructure projects. Economy Ministry officials were saying that if the 2006 deficit target is achieved, it will be a big boost for the economy’s growth prospects. They are aware, however, of the difficulty of the enterprise. The government’s fallback position is to ask Ecofin and the Commission for an extra year in order to complete Greece’s fiscal adjustment, an extension previously granted to Portugal.