Greece out of excessive deficits

BRUSSELS – The European Commission’s spring economic forecasts report yesterday confirmed the end of the long saga of the excessive deficit procedure that was started against Greece two years ago, but Brussels showed no intention of relaxing its vigilance by refocusing its supervisory interest on the country’s sizable public debt, the second highest in the eurozone after Italy. The report, presented by Economic and Monetary Affairs Commissioner Joaquin Almunia, confirmed that Greece last year brought its budget deficit to below the mandated cap of 3 percent of gross domestic product (GDP), leading to the lifting of the excessive deficit procedure, which the Commission will recommend on May 16 and the council of EU economy and finance ministers (Ecofin) is expected to approve on June 5. The report also forecasts the deficit to fall to 2.4 percent in 2007 and rise again to 2.7 percent in 2008. Greece’s exit from the excessive deficit procedure is a «vindication of the strong efforts made to reduce the deficit and promote the structural changes that have produced high growth rates and a reduction in unemployment,» said Economy and Finance Minister Giorgos Alogoskoufis. «(Nevertheless) we still have a long way ahead of us» to further buttress growth and deal with unemployment even more effectively. However, Almunia noted that for Greece, as for Italy, the very high public debt, in both cases in excess of 100 percent of GDP, means annual servicing payments of about 4.4 percent of GDP which could otherwise be devoted to more productive uses. The Commission noted that the deficit figures given are based on the country’s «old» GDP data, that is, before the upward revision – by about 25 percent – which is pending approval by Eurostat. The revision is projected to raise the deficit figure slightly, but not so much as to lift it above the 3 percent cap. The reason is that, due to the revision, Greece will be called to pay more than 2 billion euros in additional contributions to the EU budget for past years. But as long as the budget is executed as approved, the deficit will stay below 3 percent. These additional contributions will be one-off, therefore the percentage deficit figure is expected to improve markedly from 2008. This will facilitate the elimination of the fiscal deficit by 2010 which eurozone members are targeting. The Commission also noted Greece’s continuous and rapid GDP growth, but also stated that the country’s exports remain meager due to low competitiveness – the only sectors escaping mediocrity as currency earners being tourism and shipping.