ECONOMY

EU takes action against Greece

The European Commission started disciplinary steps against six European Union countries, including Greece, for exceeding the bloc’s budget deficit limit, but will set deadlines for reducing the gaps in March. «In Greece, fiscal imbalances have been high and persistent for many years, in spite of the buoyant activity up to 2008, and have structural roots,» the Commission said in a report yesterday. «Bloated deficits have led to one of the highest debt ratios in the EU, which not only remains above the 60 percent of GDP reference value, but is also on an upward path.» The Commission expects the Greek shortfall to be 3.7 percent this year, the third year in a row it has been above the limit, and 4.2 percent next year. The EU sets a deficit ceiling of 3 percent of gross domestic product and nations that breach the limit can be subject to economic sanctions, though none have so far been fined. The ruling conservatives, which pledged to put public finances in order when first elected in March 2004, escaped the threat of disciplinary action over its deficit in June 2007 when it cut the shortfall to below the ceiling. The budget gap reached a eurozone record of 7.5 percent in 2004, fed by costs for that year’s Olympic Games in Athens. Greece has only once met the EU’s deficit target since adopting the euro in 2001. That was in 2006, when the figure was 2.8 percent. The shortfalls in Greece reflect «insufficient control» of public expenditure while revenue assumptions have proven to be «systematically overoptimistic,» the Commission said. Prime Minister Costas Karamanlis replaced Giorgos Alogoskoufis as economy and finance minister earlier this year after Alogoskoufis announced a series of taxes to boost revenue that precipitated a slide in New Democracy’s popularity. The Commission also launched the excessive deficit procedure against France, Spain, Ireland, Latvia and Malta because of their budget gaps. «Exceptional circumstances are considered where appropriate,» Economic and Monetary Affairs Commissioner Joaquin Almunia said. «In all other cases the Commission will use the full flexibility embedded in the revised Stability and Growth Pact when considering the next steps under the excessive deficit procedure in the weeks to come,» he said. He added that nobody was thinking about sanctions. Budget goals will not change National Economy and Finance Minister Yiannis Papathanassiou said yesterday Greece will stick to its target of reducing the budget deficit to below 3 percent of gross domestic product by 2011. «The Greek government will closely monitor developments and is determined to achieve the goals it has set, at all costs,» said Papathanassiou, in response to news that the European Commission will launch disciplinary action against Greece. The Finance Ministry predicts that Greece’s 250-billion-euro economy will expand at an annual rate of 1.1 percent this year, versus a 0.2 percent growth rate expected by the European Commission. «The difference between the growth rate projections affects forecasts for the budget deficit and public debt,» the ministry said. Between 2006 and 2008, the EU envisaged growth rates lower than those Greece managed to achieve, Papathanassiou added.