Eurozone deficits decline
BRUSSELS – Government deficits in the eurozone fell last year, the EU statistics office said, adding it would further examine Greece after the country’s gap for the last two years turned out higher than previously reported. The budget deficit in the 12 countries using the euro fell to 2.4 percent last year from 2.8 percent in 2004, Eurostat said yesterday, as seven euro members including the two biggest economies, Germany and France, improved their balances. The European Union ceiling for budget deficits is 3 percent of gross domestic product and the data showed four eurozone states were in breach of it last year, down from five in 2004. After overshooting the ceiling every year since 2000, Greece could be fined if it fails to bring the gap within limits in 2006. The European Commission, which monitors budget gaps, said in February that Athens was broadly on track to bring the shortfall to its target of 2.6 percent this year, but based its view on a 2005 deficit of 4.3 percent as reported by the Greek government. But Eurostat said yesterday the gap was 4.5 percent and revised up the 2004 deficit to 6.9 percent from 6.6 percent – the second upward revision to the data in the last year. The Commission had no comment yesterday on whether the larger budget gap could prevent Greece from cutting its deficit as promised this year. Commission spokeswoman Amelia Torres noted, however, that any action on Greece depended also on the Commission’s forecast of the Greek deficit for this year. This is due on May 8. Visit to Greece Eurostat said the rise in the 2004 gap was «mainly due to a change in the working balance of the state budget and to the downward revision of the surplus of the social security funds.» For 2005, Eurostat said it used the latest data submitted by Athens on April 1, after the Commission wrote its assessment that Greece was broadly on track to meet its targets. A Eurostat official explained the higher deficit was partly due to penalties Greece had to pay for not properly managing EU funds in 2000-03, which were all booked for 2005 even though they would be paid over several years. But there remained problems with Greek statistics on social security funds and local governments and the classification of one-off revenues. «Despite the recent improvement in the statistical processes and good cooperation between Eurostat and the national statistical authorities of Greece, issues remain related to the Greek government accounts of a structural and systemic nature,» Eurostat said in a statement. «Eurostat will undertake a methodological visit in the coming weeks in order to clarify the pending issues,» it said. The Greek Finance Ministry stuck by the country’s plans to bring the deficit below 3 percent this year despite the Eurostat revisions and said no new measures were needed. It also blamed the previous, Socialist government for the discrepancies. The center-right government won elections in 2004 and revealed later that year that Greece had under-reported its budget deficit to the EU since 1997, including 2001, when it joined the eurozone. France below ceiling Eurostat confirmed that France, which had broken the EU’s budget gap ceiling every year since 2002, managed to bring it below the limit in 2005 to 2.9 percent. The Commission would not say whether this meant the EU would end its action against Paris, noting again that much depended on whether the French deficit remained under 3 percent in 2006 – a forecast the EU executive will also make on May 8. The biggest budget offenders in 2005 were Portugal, which had a gap of 6 percent, Greece with 4.5 percent and Italy with 4.1 percent. In the entire European Union of 25 countries, Hungary had the biggest budget deficit of 6.1 percent of GDP. Despite the falling budget gaps, government debt rose to 70.8 percent of GDP in the eurozone from 69.8 percent in 2004 as increases in Germany, France, Italy and Portugal offset declines in Belgium, Greece, Spain and Finland. The newcomers The European Union’s new member states cut their budget deficits in 2005, with the notable exception of Hungary, data showed yesterday, auguring well for their bids to join the eurozone. Eurostat said only Hungary and Malta had budget gaps above 3 percent of GDP among the 10, mostly ex-communist countries that joined the EU in 2004 and must adopt the euro in the future, although they have no deadline to do so. Deficits in Poland, the biggest EU newcomer and Slovakia fell below that level for the first time in years – to 2.5 percent of GDP and 2.9 percent respectively from 3.9 percent and 3.0 percent in 2004. In Hungary, where the Socialist-led government loosened its belt ahead of Sunday’s general election, the deficit grew to 6.1 percent of GDP last year from 5.4 percent. The EU has given Hungary until September to present a credible plan to cut the deficit below 3 percent of GDP or face possible sanctions. The task will fall to the Socialists, who won the vote. «Now that elections are over, we expect to receive this convergence program. Hungary has the largest budget deficit in the EU,» Amelia Torres, the Commission’s spokeswoman for monetary affairs, told a daily news briefing. Hungary must slash its deficit below the required threshold in 2008 if it wants to meet its goal of adopting the euro in 2010, which analysts say is becoming increasingly unrealistic. Eurostat data also showed that Hungary’s public debt increased to 58.4 percent of GDP in 2005 from 57.1 percent, creeping dangerously close to the 60 percent euro entry limit. Future unclear Despite improving their fiscal situation, Poland and Slovakia are not off the hook. Their deficit will be boosted significantly from March 2007, when Eurostat changes the way it counts their costs of pension reforms. The change will inflate Poland’s deficit by 1.7-1.9 percentage points and somewhat less in Slovakia. In Hungary, the deficit would have been 1.4 points higher last year if it included pension reform costs, Torres said. «In Poland… the deficit would not be below 3 percent of GDP,» she said. Analysts worry that Poland’s ruling conservatives, which after last year’s election have to rely on fringe group support to survive in parliament, will shy from any austerity measures especially as they are not keen on fast eurozone entry. It is also unclear whether Slovakia, which targets euro entry in 2009, will keep its pro-reform drive after a general election in June that could bring to power a coalition of leftists and the party of a former autocratic prime minister. Eurostat figures confirmed that Slovenia meets all eurozone entry criteria. EU officials have said the country is well placed to become the 13th member of the eurozone next January. Lithuania is expected to see its euro entry delayed from the start of 2007 due to high inflation, despite a budget deficit of just 0.5 percent of GDP and public debt of 18.7 percent. Eurostat figures indicated that the public debt of Cyprus and Malta, at 70.3 percent of GDP and 74.7 percent respectively last year, could affect their bids to join the euro in 2008. Latvia also wants to join on that date but its inflation may jeopardize the plan. The Czech Republic, which lowered its deficit to 2.6 percent of GDP last year from 2.9 percent in 2004, hopes to adopt the euro in 2010.
