Greece defends eurozone’s Stability and Growth Pact

Greece yesterday leapt to the support of the Stability and Growth Pact, calling it an «essential tool for fiscal stability» in the eurozone, a day after European Commission President Romano Prodi derided the budget-deficit limits as «stupid» and «rigid.» Spain reiterated its backing for the much-maligned pact. As one of the countries in the eurozone with balanced budgets, it has been very vocal against the EC’s recent decision to allow four member states more time to improve their finances. «I strongly believe that the Stability and Growth Pact is a very essential tool for fiscal stability and for sustaining the credibility of monetary policy,» National Economy Minister Nikos Christodoulakis was quoted by Reuters as saying. He was in Barcelona for a meeting of European and Mediterranean finance ministers. Greece currently chairs the Eurogroup. In common with other smaller EU countries such as Spain, Austria, Sweden, the Netherlands and Belgium, Greece has been critical of the EC’s unexpected decision to relax the balanced-budget deadline for the four largest economies in the eurozone. Germany, France and Italy, which account for three-quarters of the eurozone economy, risk breaching the 3 percent threshold this year. Greece does not support the adjustments regarding the pact even though they do not affect the country, Christodoulakis said last month. Like many of the smaller countries, Greece’s opposition is understandable. Saddled with massive budget deficits for years, it finally brought its finances under control last year by posting a marginal surplus. The 0.1 percent budget surplus was the first in 30 years and followed a 0.8 percent deficit in 2000. The government is targeting a 0.4 percent budget surplus this year, revised downward from 0.8 percent. The 2003 draft budget projects a surplus of 0.5 percent. The government is determined to bring public finances under control in line with its objective of achieving real convergence with other eurozone countries in a decade. Christodoulakis yesterday said the Stability and Growth Pact «should serve as the basis for credibility of our economic policies.» Explaining Prodi’s controversial comments on the pact, he said there were occasionally different ways of viewing it but ultimately «we believe in the same God.» Spanish Prime Minister Jose Maria Aznar blamed France and Germany’s failure to introduce necessary structural reforms for their current financial predicament. He said the pact «is an essential base for growth, reforms and flexibility in Europe,» AFP reported. European Central Bank Vice President Lucas Papademos called for respect for the pact and said there was room for more effective implementation. Drawn up in 1997, the pact requires eurozone countries to aim for balanced public finances in the medium term.