Despite heavy debt, no abrupt changes in view
Problems with the economy and hidden debts have not wiped the smile off the face of National Economy Minister Giorgos Alogoskoufis. In an interview with Kathimerini, he blames the previous administration for the public debt, which will reach 109 percent of GDP, but rejects the use of abrupt measures, saying the European Union will not make heavy demands on Greece. He announces that he will draw up a three-year deficit reduction plan, and within the next few days will announce a generous plan to settle outstanding tax debts. He expects to see benefits from a package of tax, development and anti-bureaucracy measures. The minister speaks of a new land policy based on selected areas to be sold by international competition for various uses, chiefly toward tourism. He will also promote a wide-ranging program of privatization and liberalization, though he will not, for the present, raise the issues of social security reform or labor market changes. By raising the issue of public finance, you have attracted EU attention. The opposition accuses you of making commitments on economic policy that Brussels will force you to implement abruptly in the fall. How much pressure are you under? There is no climate of abrupt measures for Greece, or for the EU in general. Don’t forget that the Stability Pact, which was was once seen as written in stone, is being seriously questioned. Reforms and major structural changes have to be acceptable to the people. Times have changed. There is a big difference from 1993. Everyone in Europe is cautious and seeks community consensus. Besides, it has been proved that the Maastricht model doesn’t work. The EU now has the lowest deficits but the least development in the world, while interest rates are high. The EU gained nothing from its dogmatic insistence, while the US, which was more flexible, achieved higher output. We hid a lot But our experience doesn’t tally with that of other eurozone countries. The deficits got out of hand, the debt is huge, therefore one expects drastic action from a new government. Indeed, Greece’s problem is different. The adjustment during our inclusion in the Economic and Monetary Union was inadequate and largely faked. We hid a lot from our partners; above all, for years we implemented a very expansionist fiscal policy and we hid it – it didn’t appear in the deficit. We didn’t go through the phase of adjustment that was recorded throughout Europe. And with the Olympic Games and high public consumption, we have gone completely overboard. Now domestic consumption is falling, housing demand has decreased, and this period is coming to an end. It is not by chance that we have set the goal of increasing private construction activity. We have to find ways of boosting private investment, as exports have fallen due to low competitiveness, tourism isn’t doing well and in general the economy shows signs of decline. Greek shipping Doesn’t the example of shipping impress you? Shipping is independent. It isn’t affected by domestic conditions; its progress depends largely on the course of the international economy. What is useful to us is to bring capital here, to bring supplies to Piraeus, and develop financial and economic services in which we lag behind. We have to find the right incentives for bringing shipping capital here and making the Greek flag more attractive. Isn’t that the big challenge for the Greek economy in general, to win in international competition? Greece has to become an attractive destination for foreigners, for multinational companies to invest in. That’s why we put emphasis on reducing tax rates and simplifying tax inspections. The current tax rate for businesses is 35 percent and entrepreneurs know they pay 50 percent. That’s what they all tell us. They can’t bear the uncertainty due to the arbitrariness of tax inspectors. I consider that to be the big challenge in tax reform. An entrepreneur who acts according to the law should have no fear, no uncertainty. Matters outstanding How can tax reform, especially the reduction of tax rates, be effective when public finances are in crisis? On July 5, Ecofin will discuss the Greek economy. There is a good spirit among the council of ministers, though there is anger among the technocrats at the problematic nature of the Greek statistics, and that’s reasonable, seeing that we don’t yet have the full picture for 2003. There are outstanding matters to do with the defense debt and the «white hole» – the famous surpluses of the social security funds and other state organizations that have not yet been recorded. The Statistical Service is making a full inventory of the reserves of all organizations, and it seems there is a reduction there, despite what has been said. I hope it isn’t large. There is also great uncertainty about the debt. Everyday we discover something new. We just discovered that in 2001 the government of Costas Simitis swapped bonds worth 2.8 billion euros in order to hide part of the debt, an action that – due to the rise in the price of bonds – has burdened the State with a debt of 4.3 billion euros. Higher public debt If that is so, the public debt is even higher and tackling it will be more difficult. The situation is worse than expected, but we haven’t seen it all yet. I estimate public debt will be 5-6 percentage points higher, and may go from 103 percent to 108 or 109 percent of GDP. Obviously we will take steps to control the public deficit. I have already spoken to European Commissioner Joaquin Almunia and we will implement a three-year program, which will be easier since we won’t have Olympic expenses, and Brussels understands that. Settling tax matters Shouldn’t measures be introduced speedily? There will be some temporary measures now. The budget needs revenues or it will go off the rails. In the next few days, we’ll announce the settlement of tax matters pending from 1999-2002. It will be a generous settlement, even if I’m not in favor of them, but we haven’t many options. It will be generous because we need the revenue, but it will be the last. Tax reforms are a tool for dealing with urgent situations in public finances but aren’t able to provide permanent solutions. Presumably you won’t limit yourself to them. The three-year program will include many measures, mainly concerning expenditures. We want to imbue the entire public sector with a spirit of economy while presenting a bold program of privatization, If the criterion of debt is adopted as a mechanism for controlling public finances, then privatization will go ahead more intensively. We have looked at all the options and will act in an organized fashion. For example, we will sell 35 percent of the DEPA public gas corporation to the Spanish. And we’ll have another look at public power and telecommunications (PPC and OTE) and the lottery and pools organization (OPAP). We have to hurry with OPAP, because as electronic media develop, the monopoly will be lost. We can open up that market and bring benefits in to the State. There is an ethical issue; I don’t see gambling as a lever for development, I prefer other sectors, such as energy. What will the 2005 budget be like? Tight. We’ll try to limit expenditures, but we are committed to giving tax cuts to businesses. We won’t have Olympic expenses but will have to find substitutes to maintain construction activity. We’ll emphasize projects in the provinces and faster absorption of Third Community Support Framework funds. We have set a goal of absorbing 35-37 percent of CSFIII funds.
