International spotlight on the economy

The European Commission’s prediction that the public deficit in 2004 will be 2.4 percent – double that forecast by the government in its draft budget – has caused political turbulence. In a Cabinet meeting on employment yesterday, Prime Minister Costas Simitis left National Economy Minister Nikos Christodoulakis to explain the situation on his own after Culture Minister Evangelos Venizelos asked what government members should say in response to criticism in the news media. Christodoulakis appeared optimistic that he could sway the Commission into changing its forecast before he presents his budget to Parliament in about three weeks’ time. Firstly, he said, the Commission had underestimated next year’s revenues, whereas revenue forecasts in previous years’ budgets had been met. Secondly, the Commission may have overestimated the cost of spending related to the government’s social package of wage increases and benefits. Thirdly, he said that the Commission had made a mistake in calculating growth at 3 percent of GDP in 2003 when it was going to be 4 percent. But if the worsening fiscal situation in the country is an issue of image and communications policy for the government, international organizations are unlikely to see it that way. In November, the government is expected to present its revised Stability and Development Pact so that it can be evaluated in January 2004. This evaluation is expected to be painful as Greece is being examined with a fine-toothed comb. Also, Eurostat is expected to announce its findings regarding «gray zones» in Greece’s finances which it had examined in September. Emphasis will be placed on defense costs, the bookkeeping of which is said to be exceptionally deficient. Eurostat also found discrepancies between state guarantees for borrowing by various agencies and the true cost, which is a direct burden on the public debt. This could lead to a negative climate in international financial markets, where Greece borrows more than 32 billion euros annually. A slight increase in rates would further worsen the country’s finances and this, in addition to the burden of the Olympic Games, could weigh heavily on the country.