Central bank warns about public debt

Presenting the central bank’s interim report on the economy, Bank of Greece Governor Nicholas Garganas yesterday issued a stern warning over the public debt’s high level. He also pressed for the EU’s Stability Pact to be adhered to strictly, differing from National Economy and Finance Minister Nikos Christodoulakis, who, at the ECOFIN meeting in Brussels on Monday and yesterday, had backed a compromise that let Germany and France off the hook for deficits over the limit of 3 percent. «If countries – especially the big ones – begin to create uncontrollable deficits, this will have serious consequences on interest rates which will be a greater burden on us than for the larger countries, but also on our common currency, the euro,» Garganas told Parliament’s standing committee on the economy. Christodoulakis yesterday backed the Stability Pact but also explained why Greece had supported the majority of countries in the ECOFIN meeting which decided not to impose sanctions on Germany and France. «The inability to achieve a compromise solution would create a political vacuum in the credibility of the Stability Pact,» the minister said. «The Stability Pact is the necessary and adequately flexible framework in which each country must conduct its economic policy.» He said that he had argued against any change to the basic principles of the Stability Pact. Government spokesman Christos Protopapas stuck to need for flexibility. «There is a need to evaluate certain circumstances and we must show understanding of the problems some countries face,» he said. Garganas said Greece’s public debt should be 3 percent lower than the 101.7 percent of GDP forecast by the 2003 budget. He said the debt was widened by higher public spending and a loosening of fiscal policy. Garganas also said that although inflation was dropping, it was still above the EU average – because the deregulation of markets (of goods and services) had been neglected. The high deficit in the current accounts deficit, he said, would reduce GDP growth by 0.5 percent and he called for greater efforts to narrow the deficit.