Commission warns on deficit

BRUSSELS – The European Commission is expected to judge Greece’s revised stability program for the economy to be overly optimistic, raising the fear that this year the deficit may even exceed the 3 percent of GDP allowed by the Stability Pact. The report, which is to be made public early next week, will note that when full figures are available, the deficit for 2003 will be worse than forecast and that of 2004 even direr. The government forecast a deficit of 1.4 percent of GDP for 2003 and 1.2 percent for this year, but the Commission made its own forecast of a deficit of 2.4 percent. Now it will probably say there is a serious risk of it exceeding 3 percent of GDP. The high cost of Olympic projects, in conjunction with the lack of measures to reduce primary spending and a history of systematic overspending «do not provide any guarantee that the program contains sufficient margins to prevent the 3 percent of GDP being exceeded,» the report is expected to say. It does not expect Greece to reach its target of no deficit by 2006. «The revised program does not provide an analysis of the balance sheets per sector of general government, as was the case with previous programs, nor an anlaysis of the long-term viability of public finances,» the report will say. It will note that growth rate forecasts «reflect unjustifiably optimistic» predictions of investments and that inflationary pressures may be greater than expected due to strong domestic demand. This, in turn, will affect public spending, e.g. on wages, and hurt competitiveness. The report will warn of the grave danger of serious fiscal imbalances in the future owing to an aging population and high debt, and that there must be an «overall strategic response.»

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