European warning on fiscal plan

European Union officials yesterday required that Athens take additional measures of a permanent nature amounting to 1.5 percent of gross domestic product, or 3.5 billion euros, for Greece to achieve the targets set by its Stability and Growth Plan. The officials from the European Commission and the European Central Bank who yesterday concluded a three-day visit to the Greek capital in order to evaluate the government’s plans for containing the deficit appeared to have three main objections to the plan presented, apart from the inadequacy of the measures already announced. The first concerns the worry that the deficit reduction is based on increasing revenues and not on the containment of spending. Reaching the fiscal targets through tax revenues carries a high degree of risk, as it depends on indeterminable macroeconomic developments, i.e. the growth rate and the taxpaying capacity of enterprises and people, as well as on the performance of tax-collection mechanisms. Another objection regards the cut in expenditures for this year, which concerns to a great degree one-off spending, although there is a great margin for reducing costs in the public sector. The European officials asked for public spending to be reviewed from the start. Finally, while for this year the measures have been quantified, this has not been set out for 2011 and 2012. The European Commission deems that process essential in order for the Stability Plan to be reliable. Athens has said that European monitoring mechanisms can inspect the next two years’ budgets toward this purpose.

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