No fiscal relaxation

Greece has made enough fiscal progress to exit the European Union’s excessive deficit monitoring, the country’s finance minister said yesterday, vowing no relaxation until budgets become balanced. Greece has been under EU scrutiny since revealing it had under-reported its budget deficit to Brussels for years and faces sanctions if the figure is not brought under the ceiling of 3 percent of GDP this year. «Fiscal data justify an exit from the EU’s excessive deficit procedure,» Finance Minister Giorgos Alogoskoufis told a news conference, a day after the government announced a surprise 25 percent upward revision of the country’s GDP. The minister said the government would continue its strict adherence to tight public finances, targeting a budget deficit of 2.4 percent of GDP next year, down from 2.6 percent this year, without basing it on the revised GDP figures. «We remain steadily focused on shoring up public finances. The draft 2007 budget will not be based on the revised GDP data,» Alogoskoufis said. The government announced on Wednesday it was revising its 2001-2006 GDP to include parts of the black economy, a move that would increase national output by 25 percent to 242 billion euros this year. Alogoskoufis said Athens would work closely with EU statistics body Eurostat to have the revised GDP data validated, a move which he said would provide a more accurate picture of the size of the country’s economy. «We are not becoming richer by the revision, we are simply measuring better. The country’s fiscal situation does not change because the denominator changes,» he said. Big tax evasion Alogoskoufis, who masterminded the audit that revealed that Greece under-reported its budget hole to Brussels, countered criticism that the revision effectively wiped clean the country’s fiscal malaise. «Even with the revised (GDP) data, the fiscal problem does not change. The revision does not mean we have an increase in tax revenues. We have not reached the end of the fiscal adjustment,» the minister said. «This will not happen until we have balanced budgets. Even with the revised GDP, the budget deficit since 2000 is still above 3 percent.» Alogoskoufis said Greece’s GDP revision focused mostly on the services sector – retail and wholesale trade, hotels, construction and illegal activities. The findings revealed that the problem of tax evasion was larger than previously thought. «There is a big problem of tax evasion in the services sector, making it even more imperative to intensify the battle against this,» he said. He said money from criminal activities made up 0.7-0.8 percentage points of the 25 percent GDP increase. The country’s chief statistician said on Wednesday that the revision would include aspects of the black economy, such as smuggling, money laundering and prostitution.