Restoring confidence
The government will unveil this week an updated convergence program as well as its wage and income policies for the coming year, hoping that it will succeed in lifting the mood of gloom among both investors and consumers over the economy’s short-term prospects. Economy and Finance Minister Giorgos Alogoskoufis believes that the current unfavorable climate is the result of hostile media focusing on the fact that the European Union has challenged the government’s ambitious targets for 2005, such as achieving 3.9 percent economic growth and lowering the deficit to an amount equal to 2.8 percent of Greece’s gross domestic product (GDP), as well as on the likelihood of the final 2004 deficit exceeding the government’s estimate, made last September, of 5.3 percent of GDP. On Wednesday, the government will unveil its 2005 pay policy for civil servants and pensioners. It is expected that the government will raise wages by an average of 3.6 percent and pensions by 3.9 percent, that is, higher than average inflation. Prime Minister Costas Karamanlis hopes that this will be a sign that the government will not stray from its declared policy of «mild adjustment» and that it will reassure wage-earners that no austerity measures are to be imposed. On Friday, the Council of European Finance Ministers (Ecofin) will adopt the European Commission’s recommendation that Greece be placed under the excessive deficit procedure envisaged by Article 104, Paragraph 9 of the Maastricht Treaty, which requires a member state to adopt a specific timetable of returning to acceptable deficit levels and spell out measures designed to produce this outcome. More important to the Greek government is the fact that Ecofin will give Greece until 2006 to lower its budget deficit to below 3 percent of GDP. At present, the government envisages three alternative ways of achieving this: the first, lowering the deficit to 2.8 percent of GDP this year and 2.1 percent in 2006, was the one envisaged in the budget and has been essentially rejected by the Commission. The second is to lower the deficit to 3.6 percent in 2005 and below 3 percent in 2006. The third, made increasingly likely by a plunge in revenues, forecasts a 4 percent deficit this year.
