ECONOMY

‘Better than planned’

Greece will meet its EU-set budget deficit target in 2006 and even do better than planned thanks to a revenue boost from a crackdown on tax evasion, Economy and Finance Minister Giorgos Alogoskoufis said yesterday. Greece, facing EU sanctions unless it cuts its budget deficit to below 3 percent of GDP this year, has said it aimed for 2.6 percent this year despite European Commission warnings the target was optimistic. «If we overshoot our revenue targets, I believe we will be below 2.6 percent,» Alogoskoufis told Reuters in an interview. «Or, we may not need some of the one-off revenues we have included in the budget.» He said revenue acceleration began in October 2005, helping last year’s budget, and added that in the first two months of this year revenues grew by over 16 percent – 17.7 percent in January and 14.4 in February – double the pace Greece needs. «It shows tax evasion is being dealt with efficiently,» he said. «At this point we need revenue growth under 7 percent to meet the budget targets.» He said fighting tax evasion, a chronic problem in Greece, and better VAT collection helped the 2005 budget close slightly better than predicted, while it set a solid foundation for 2006. Facing EU sanctions Greece angered its EU partners in 2004 when it revealed that it repeatedly under-reported its deficit to the EU since 2000, including in 2001, the year it joined the eurozone. It faces sanctions if it does not cut the deficit to below 3 percent this year from 4.3 percent in 2005 and 6.6 percent in 2004. The Commission said in February that, although broadly on track, Greece still needed approval from statistics office Eurostat for one-off revenues amounting to 0.6 percent of GDP as eligible deficit-cutting measures to meet its targets. The issues, concerning overestimation of social security and local government surpluses, could have carryover effects in 2006 and beyond, the Commission said. Alogoskoufis said he had a long list of extraordinary revenues in case Eurostat found fault with the ones under review and that he was confident the final budget deficit figures would not be greatly affected. «Our impression is that we have resolved all problems. There is one problem with surpluses of insurance funds, where Eurostat expresses some reservations,» he said. «We have quite a wide menu of extraordinary revenues that will allow us to be completely in line with Eurostat rules.» These options include dividends from state companies and revenues from concessions. Alogoskoufis confirmed the 2006 inflation target of 3.2 percent, down from 3.5 percent last year, and stuck to expected GDP growth of 3.8 percent, crucial to meeting the EU-set deficit target. The Greek central bank had said in February that GDP growth, although outpacing the eurozone average, would slow to 3.5 percent this year from 3.7 percent in 2005. Alogoskoufis said he was confident that, barring a major catastrophe, Greece would not need a one-year extension discussed in Brussels to meet the deficit goal. «This is the worst-case scenario for the country but it is my evaluation that it will not happen,» he said. «Developments since the start of the year are well above our expectations.» The government will pick an adviser for the privatization of its fourth-largest lender, Emporiki Bank, by the end of this week, and wants the sale to be swift, Alogoskoufis said. He said France’s Credit Agricole, which owns 9 percent of Emporiki and 11 percent of its voting rights, is a front-runner in the sale, part of the conservative government’s sweeping privatization program since coming to power in 2004. «The adviser will be picked at the end of the week and will need two to three months to propose the process, which will then be relatively quick,» Alogoskoufis told Reuters in an interview. «Credit Agricole is a de facto front-runner» as a potential buyer, he added. Greece wants to sell its controlling stake in Emporiki by the end of the first half of the year. The government holds 9.5 percent directly and an additional 30 percent indirectly through state pension funds. Up to 24 percent of Emporiki will be up for sale as part of this year’s privatization agenda to raise 1.65 billion euros ($2 billion) to pay down public debt, highest in the eurozone as a percent of GDP. Alogoskoufis said the target may well be overshot. «We set a target of 1.6 billion euros, the same as in 2005. We overshot it last year, and at this pace we cannot rule out that this year we will exceed it again,» he said, referring to proceeds of 2.1 billion euros last year. Emporiki has a market value of 4 billion euros. Its shares trade at 32.9 times 2005 earnings, a sharp premium to the 16.42 multiple for the European banking sector, according to Reuters data. The stock has lost 6 percent since the start of the year, underperforming the broader Greek market. Alogoskoufis said the government was on track for the privatization of ATEbank and the Postal Savings Bank, but he saw no major utilities going on the block this year. The government wants this year to sell 10 to 15 percent of 83 percent state-owned ATEbank, to float Postal Savings Bank by the summer and list Athens International Airport (AIA) on the Athens bourse in 2007. A flotation of AIA, currently 55 percent state-owned, had been slated for this year. Alogoskoufis said there were no plans this year to sell part of OTE, the country’s largest telecoms group which is 38.6 percent owned by the state, or reduce its 51 percent stake in dominant power utility Public Power Corporation. «The continuation of (their) privatization will be seen very positively in coming years,» he said. «Our philosophy is that such large companies must operate in the private sector.»