No more EU supervision

BRUSSELS – As expected, the European Commission yesterday anticipated Greece’s exit from the fiscal supervision procedure in its fall economic forecasts report. The report forecasts that Greece’s budget deficit will equal 2.6 percent of its gross domestic product (GDP) both this year and next and will drop to 2.4 percent in 2008. In every case, it will be below the 3 percent limit deemed acceptable by the EU’s Maastricht Treaty. The excessive deficit procedure under Article 104, Paragraph 9 of the Maastricht Treaty had been invoked against Greece on February 16, 2005. Its case will be examined next April, using the final figures of the 2006 budget and the available data from the implementation of the 2007 budget. If these data confirm yesterday’s positive forecasts, Economic and Monetary Affairs Commissioner Joaquin Almunia will officially recommend that Greece exit the procedure. The final decision will be made by the Council of European Finance Ministers (Ecofin) in June 2007. In presenting the report, Almunia made no specific comments about Greece other than to observe that the budget deficit will be within the allowed limit until 2008, at least. The deficit forecasts for 2007 by the Greek government and the Commission differ slightly. In its report, the Commission notes that the Greek government forecasts a deficit equal to 2.4 percent of GDP without resorting to any one-off measures the Commission has warned against but through cutting public spending by 0.25 percent of GDP and correspondingly increasing revenue, especially through indirect taxes. The Commission itself forecasts Greece’s 2007 deficit at 2.6 percent of GDP, because of a slightly lower GDP growth forecast and skepticism about the claim to reduce public expenditure, a skepticism «based on lessons from the past,» as it notes. The Commission further notes that all the data on which it based its forecasts do not include Greece’s recently-announced upward revision of its GDP, made, according to the Greek government, by including gray economy activities. The Commission, which is highly skeptical about the magnitude of the revision (25 percent) has referred the matter to Eurostat, its statistics service. On the basis of Eurostat’s investigation and recommendations, Greece’s economic statistics will be revised next year. In its report, the Commission takes note of Greece’s continued high growth in 2006, based mostly on private investment (especially in the construction sector), while the growth of private consumption slowed down and public consumption almost leveled off as a result of the government’s efforts to rein in spending. For 2007, the Commission forecasts a slight slowdown in the construction sector and a further slowdown in private consumption but a recovery in public investment.

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