EU moving ahead with deficit watch

The European Commission is set to tighten its watch on Greece’s economy after EU finance ministers said yesterday they were not convinced that Athens could reduce its budget deficit to below the the 3 percent of GDP eurozone limit by the end of this year. In his 2005 budget, Economy and Finance Minister Giorgos Alogoskoufis claimed that Greece would lower its public deficit to 2.8 percent of GDP this year. However, the other 24 EU finance ministers taking part in an Ecofin meeting in Brussels yesterday agreed with the Commission’s view that it was unlikely Greece could reach this target and that it should be subject to the next disciplinary measure of the «excessive deficit procedure.» The Commission believes Greece’s deficit will stand at 3.6 percent of GDP by the end of this year. The continuation of the disciplinary process means that the Commission will issue Athens with certain recommendations next month on how to reduce its deficit, as set out in Paragraph 8 of Article 104 of the Maastricht Treaty regarding measures for EU member states with excessive deficits. This is the furthest down the disciplinary line that the Commission has ever taken a eurozone member and could lead to a hefty fine. Alogoskoufis, however, said that he believes the EU executive will simply recommend that the Greek government should stick closely to its 2005 budget. He also expressed confidence that Greece would be given until the end of 2006 to reduce its deficit below the eurozone ceiling. Greece has been under increased scrutiny since a review of public finances last year uncovered larger deficit figures for the years between 1997 and 2003 than the ones submitted to the EU. During yesterday’s meeting, EU finance ministers accepted that Greece’s high deficit is «partly due to statistical revisions… and to expenditure overruns associated with the organization of the Olympic Games» as well as some overspending and shortfalls in revenues. A draft statement also acknowledged the «budgetary consolidation measures» taken by Athens, which the Council of Ministers said would lead to «a lasting improvement in the general government balance.»