Greece may dodge deficit humiliation

The European Commission will tomorrow make public its conclusions that Greece’s plans to reduce its deficit, as set out in the 2005 budget, are insufficient but will not go as far as asking the government to start providing regular progress reports, sources told Kathimerini yesterday. The Commission’s report follows the recent review of Greek public finances that revealed Greece’s public deficit for every year from 1997 to 2003, inclusive, to be over the 3 percent of GDP ceiling for eurozone members. This discovery triggered a series of EU disciplinary measures, of which the publication of tomorrow’s report is a part. By publicly criticizing Greece for not including enough deficit-cutting measures in its 2005 state budget, the Commission is stepping up the severity of the disciplinary process. The action is set out in paragraph eight of article 104 of the Maastricht Treaty. Until now, Greece had been dealt with under paragraph seven, which allows the European Council to make certain recommendations in private to the member state in question to bring its excessive deficit under control within a given period. Clearly, by rejecting Economy and Finance Minister Giorgos Alogoskoufis’s budget, the Commission does not think Greece is doing enough. However, sources indicate that the Council will not go as far as invoking paragraph nine, which envisages Greece having to implement certain deficit-cutting measures within a specific time frame as well as providing regular progress reports back to the EU body – a much tighter monitoring process. The Commission’s more lenient approach may have been influenced by its decision last week to put on hold disciplinary action against Germany and France, the first two member states to contravene eurozone deficit rules. The countries with the eurozone’s two biggest economies have promised to bring their deficit below the 3 percent of GDP limit next year. Greece is expected to be allowed an extra year, until 2006, to reduce its deficit from a projected 6 percent of GDP this year. The Commission’s report will have to be approved by EU finance ministers at an Ecofin meeting in January, while the 2005 Greek state budget, which is being debated in Parliament at the moment, will be voted on tomorrow.