Warning of fiscal stringency

Economy and Finance Minister Giorgos Alogoskoufis yesterday underlined the difficulty of attaining the fiscal targets set by the government within the framework of the 2008 budget and assured that the deficit will this year remain below 3 percent of gross domestic product (GDP), despite retroactive contributions to the European Union due to the revision of GDP. «Its implementation will require a great deal of effort,» Alogoskoufis said of the budget to be tabled in Parliament on November 20. «At the current juncture, and despite the fact that the deficit is below 3 percent of GDP, we cannot afford to relax,» he noted. Addressing his critics within the governing party, he reiterated that the goal for a balanced budget is in fact a legal commitment, as stated clearly in the EU’s Stability and Growth Pact, which stipulates that the deficit must be reduced by 0.5 percent of GDP every year. The minister added that efforts to streamline the economy continued to be difficult due to the state of the public sector, implying that reducing the deficit is not only the task of his ministry but also of the government as a whole. Compared with the preliminary draft, the final draft of the budget will take into account Eurostat’s upward revision of GDP by 9.6 percent and its effects. As a result, the 2007 deficit will be burdened by retroactive contributions to EU coffers amounting to 750 million euros, and is projected to reach 2.6 percent of GDP, compared to forecasts of 2.3 percent without the contributions. Sources suggest that the European Commission in its fall forecasts will put the deficit slightly higher at 2.8 percent of GDP, as its expectations for growth are more conservative. However, even if the fiscal adjustment is of less magnitude than that required by the Stability Pact and even with the one-off burden of the retroactive contributions, the deficit will remain below 3 percent of GDP. In the above report, to be published on Friday, the Commission will express certain reservations about the growth rate for the current and the next two years, but Alogoskoufis said that growth prospects seem secure thanks to the government’s reforms, private investment boosted by a new law granting greater incentives, as well as the public works included in the Community Support Frameworks and the encouragement of Public-Private Partnerships. «All this will give a boost to growth for the next few years,» he stated.