Fiscal flexibility relies on reform plan

Greece may be given a two-year extension to lower its budget deficit to below 3 percent of gross domestic product (GDP) if it produces a realistic and credible plan implementing much-needed structural reforms, sources said. Economy and Finance Minister Yiannis Papathanassiou met with European Commissioner for Economic and Monetary Affairs Joaquin Almunia in Brussels yesterday where the two looked at Greece’s ailing fiscal environment. Almunia is believed to have been open to Papathanassiou’s proposal that Greece be given more time to trim its budget deficit while going ahead with a plan able to boost its competitiveness. Greece’s budget deficit is likely to reach as high as 5 or 6 percent of GDP this year, as the slowing economy weighs on tax revenues, widening the fiscal shortfall. The Economy and Finance Ministry has already raised taxes on cigarettes, alcohol, yacht ownership and gambling and has also frozen public sector wages in a bid to bring the budget gap to under 3 percent of GDP by 2010, as demanded by the European Commission. Papathanassiou is believed to have openly admitted to Almunia that Greece will miss its 2009 budget targets though the ministry has yet to publicly admit this. The International Monetary Fund forecasts Greece’s deficit will reach 5.9 percent of GDP this year and 6.7 percent in 2010. According to sources, the conservative government had been working on a series of initiatives that include deregulating professions and reducing the allowances paid to public service employees laboring in hazardous work conditions. Greece’s 70 regulated professions, such as notaries and pharmacists, are estimated to cost the country some 4 billion euros every year on account of unjustifiably higher prices for what are generally low-quality services. Prime Minister Costas Karamanlis is likely to speak this Saturday at the Thessaloniki International Fair on what reforms his government may implement if re-elected.