EU treatment of Greece in fiscal deficit issue shows double standard
Given the sorry state of public finances which the present government inherited, it is just as well that the European Union has placed Greece under supervision for violating its Stability Pact. Were it not for fear of sanctions by the Economy and Finance Ministers’ Council (Ecofin), populism and the political clientele relationships that have traditionally determined policy in Greece would have obliterated public coffers by now and bankruptcy would have been official. Of course, being under supervision has a cost in terms of the the higher rates at which the country has to borrow abroad, but this extra cost is marginal (no more than 25-40 basis points) and dwarfed by the additional burdens that the budget would suffer without fear of the heavy hand of Brussels. Economy and Finance Minister Giorgos Alogoskoufis has been steadily turning down demands by other ministers, mayors and party potentates, arguing that «if we do not reduce the deficit, we will have to pay fines that will make a mockery of the country.» However, recognizing that Brussels provides a shield against the fiscal results of endemic populism should not make us turn a blind eye to the truly tragicomic effects of the inconsistent and discriminating application of Stability Pact rules against Greece by the bureaucratic establishment in Brussels. For instance, Economic and Monetary Affairs Commissioner Joaquin Almunia last week, referring to Italy’s difficult fiscal problems, stated he is «expecting the final decisions and measures which the government of the country will adopt in order to reduce the deficit. «My information suggests that in the final budget for 2006, the Italian government will aim at reducing the deficit down to 3.5 percent. As a result, we are waiting to see the budget and the measures it will include,» he said. In other words, Italy has been violating the Stability Pact (which sets a ceiling of 3 percent of gross domestic product for the budget deficit) and will continue to do so for a second time this year, but Almunia is not considering recommending sanctions against it as in Greece’s case. The Commission has exhibited the same tolerance – perhaps even more flagrant – for Germany, which has also exceeded the 3 percent threshold in the last three years. Almunia hailed Chancellor Merkel’s commitment to return to a deficit of below 3 percent by 2007. «I hope this target will be included in the stability program which Germany will send us,» he said. A similar attitude applies in the case of France, which has been hovering around the 3 percent limit. These are double standards – tolerance of the powerful member states, sanctions against small countries such as Greece and Portugal. This inequitable treatment, while not bestowing prestige and creating confidence in Europe’s institutional organs, also does not help the European economy recover. Greece is not responsible for the stagnation in Europe when the country’s consistently high growth rates are far in excess of EU averages. Had the Commission applied sufficiently strong pressure on the big economies of the eurozone for their deficits, it might have forced reforms on them, further bolstering productive forces.
