ECONOMY

Greece lauded for effort to reduce budget deficit

BRUSSELS – Greece’s Stability Program, the updated forecasts of major economic indicators for the period 2006-2008, was approved yesterday, as expected, by the Council of European Finance Ministers (Ecofin). According to the European Commission report prepared by Economic and Monetary Affairs Commissioner Joaquin Almunia, Greece must: * Apply the necessary permanent measures in order to bring the budget deficit below 3 percent of its GDP at the end of 2006. * Continue the efforts to further reduce the deficit in structural terms (that is, without the help of one-off measures) in order to take advantage of favorable economic circumstances, limit primary spending and meet the Stability Program forecasts. * Intensify efforts to control factors other than net borrowing that affect the public debt in order to achieve a significant decrease in the debt and convergence toward the recommended debt level (60 percent of GDP). * Keep a lid on spending on pension and strictly apply the social security reforms voted in 2002 so as to ensure the long-term sustainability of public finances. * Improve the collection and processing of data on general government and the quality of data, especially on social security. Following the Ecofin meeting, Economy and Finance Minister Giorgos Alogoskoufis told reporters that both the assessment of Greece’s updated forecasts by the Commission and Ecofin’s opinion «fully uphold the government’s economic policy priorities.» «If we look at Greece’s deficit level in 2004 and today, we will see how significant the improvement is,» Almunia said. [The 2004 budget deficit was at 6.6 percent of GDP; thanks to the end of spending on the Olympics, it was reduced to 4.3 percent in 2005 and is set to fall below 3 percent in 2006.] The Commission report says Greece is well on its way to achieving the targets set for 2006, notably the deficit reduction below 3 percent of GDP. The rate of public debt reduction is considered «adequate» and «laudable.» A significant fact, by omission, is the absence of any recommendation for extra measures, provided, of course, that the budget is strictly implemented. A crucial factor in the implementation of the budget is the attainment of revenue targets, which is contingent on cracking down on tax evasion. Almunia said that early indications are positive. Alogoskoufis added that there was an acceleration in revenue growth toward the end of 2005 and that «in January, total revenue growth was 17.7 percent, while VAT revenue grew 18.1 percent (relative to the same month in 2005), while, according to provisional estimates, total revenue grew 14.4 percent and VAT revenue grew 20.8 percent in February.» The Commission report concludes that, if improvements in 2006 match those of 2005, it will be very difficult not to achieve the budget deficit goal. As a result, Greece will no longer be under the Commission’s close monitoring at the end of the year. Indicative of the positive climate for Greece at the Ecofin was the statement by Dutch Finance Minister Gerrit Zalm that «in the past, whichever closet we opened in the Greek economy, we found a skeleton.» One point of contention is the so-called «white hole» or unexpected surplus in the accounts of pension funds and local authorities. The Commission disputes its existence and has proposed that Greece take a one-time charge equal to 0.2 percent of GDP to close the matter. For his part, Alogoskoufis insists that these surpluses are well documented and refuses to put a further burden on Greece’s deficit. The issue is to be resolved after a visit of Eurostat experts in May.