ECONOMY

More spending cuts are on the way

Greece must continue its efforts toward fiscal adjustment and a balanced budget in 2010, starting with budget changes this year, because of the large public debt and the -10 billion spent every year on interest payments, said Economy and Finance Minister Giorgos Alogoskoufis yesterday. Alogoskoufis suggested there will be certain adjustments to the budget, as first-half data show it is -450 million off target. The full data are on the minister’s desk and spending cuts are reportedly being prepared, including a reduction in the expenditure of ministries. Sources argue that cuts will not affect social spending but rather focus on defence expenditure (-100 million), the Public Investments program (-200 million) and various state subsidies (-150 million). The government expects any further shortfalls in the budget to be covered along the way, with the deficit forecast to close this year at 2.4 percent of GDP, down from 2.6 percent in 2006. The reasons why the budget has been off target so far include extraordinary revenues of -409 million in 2006 and reduced income tax revenue. Last year, a 1.5 percent discount was available if corporate tax was paid in May, which no longer applies, so companies pay their tax in installments during the course of the year. However, Alogoskoufis categorically denied reports of an increase in value-added tax rates by one or two percentage points, attributing them to the opposition. The minister added that Greece presently has the highest rate of social benefits compared to other EU countries, which results in lower economic efficiency. Despite this, Greece, Ireland, Finland and Luxembourg are now the countries with the highest growth in Europe. On the issue of fiscal adjustment and its possible negative impact on growth as recently suggested by France, Alogoskoufis said: «Adjustment cannot be incompatible with growth targets. Our own experience shows that the reduction of the deficit can be combined with high growth and the reduction of unemployment.» Olympic Airlines Ryanair’s intention to sue the European Commission over the illegal state subsidies to Olympic Airlines and three other companies has thrown the issue back into the spotlight. Replying to questions, Alogoskoufis said the Greek government is in constant contact with the Commission and cooperating in efforts to find a solution. The placement of the Postal Savings Bank was successful, said Alogoskoufis, who stressed that another step in the government’s privatization program is complete: «The Postal Savings Bank is now becoming a private bank with many shareholders. It can fulfill its role as a bank for small depositors and investors more effectively, and contribute to the competitiveness of our banking system.» The target for revenues of -1.7 billion from privatizations this year has almost been attained, he noted. Asked about the issues discussed at this week’s council of European Union Economy and Finance Ministers (ECOFIN), Alogoskoufis said the main priorities were the expansion of the eurozone, the improvement of the quality of public finances, the reduction of the administrative burden on companies and taxation, and the smooth operation of credit markets. Finally, he termed «historic» the decision for the accession of Cyprus and Malta to the eurozone as of January 1, 2008.