Greece nears the end of fiscal supervision by EU

The European Commission is due to issue a report on Monday which will signal Greece’s exit from the regime of fiscal supervision it was placed under last year for excessive budget deficits over a number of past years. According to sources, the report will accept the Greek government’s projections of a deficit under the EU mandated 3 percent of gross domestic product (GDP), both for 2006 and next year. The deficit is seen at 2.6 percent for this year and 2.4 percent in 2007. The calculations have been made on the basis of current GDP figures, that is, before Eurostat, the EU statistics service, approves an upward revision according to data supplied by the National Statistics Service (NSS) to include parts of the underground economy. The NSS proposed a revision in the order of 25 percent. Alogoskoufis has said the revised GDP figures will be an opportunity to speed up rather than decelerate efforts to shore up public finances. Until recently, the Commission had cast doubt on the government’s optimistic predictions, forecasting a deficit of 3 percent for 2006 and above that for 2007, which would keep Greece under supervision. This seems to have changed now and the Commission has come closer to the Greek views. Economy and Finance Minister Giorgos Alogoskoufis discussed the implications of the report for the Greek economy with the governor of the Bank of Greece, Nicholas Garganas. Sources said the two men agreed the development is important as it will reduce pressure on Greece to conform to policy constraints and submit periodic reports. The government will submit the 2007 budget to Parliament on November 20 and a taxation bill at the end of the month. The tax changes and a new investment incentives law will be voted on before Christmas and will come into force on January 1. Ministers were heartened this week by the latest provisional inflation figure, which is projected at below 3 percent for the second straight month in October, at 2.8 percent, and by the projected GDP growth rate at 4 percent for the third quarter. Garganas briefed Alogoskoufis on the European Central Bank’s considerations regarding its basic interest rate, which it left unchanged at 3.25 percent on Thursday and is considered likely to rise to 3.50 percent in December.

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