ECONOMY

EU report sees Greek economic progress but urges reforms

The Greek economy has shown high growth rates and satisfactory progress in converging with the other economies of the eurozone, the European Commission said in its annual report on the public finances of member states, adopted in Brussels yesterday. The report notes that the country’s membership of the eurozone acted as «a positive confidence shock» for its economy, with interest rates having steadily declined since 1999 down to 2 percent today. Such low rates had positive repercussions on private investment and consumption, the Commission says. In its recent spring forecasts, the Commission projected that the Greek public deficit is likely to fall below the prescribed 3 percent limit of gross domestic product (GDP), but will again rise above this in 2007. However, Economy and Finance Minister Giorgos Alogoskoufis has said that this projection for 2007 is based on the assumption that the budget will generally be along the same lines as this year’s but this will not be the case. The Commission believes that the adoption of structural measures is necessary for the fiscal deficit to remain below 3 percent. Thus, «despite the fact that the government seems to be fully devoted to fiscal adjustment,» it appears necessary to give greater emphasis on expenses «related to long-term trends linked to the aging of the population,» that is, the social security system. The Commission cautions that without resolute measures to address the causes of some fiscal imbalances, there may be repercussions on the external trade deficit which has reached 15 percent of GDP, reflecting the lack of competitiveness of the Greek economy. The report argues that the source of deficits should not be sought in public investment, which has not exceeded 3-4 percent in recent years, but in current expenses, namely debt servicing, public consumption and social spending. Finally, the EU executive expresses the view that bolstering growth and employment will require a combination of measures for fiscal stabilization, increasing the rate of savings and overall structural reforms. Separately, Alogoskoufis told a press briefing in Athens yesterday that any discussion of a lifting of the state of supervision under which Greek public finances have been placed by the Commission for past excessive deficits is premature.