EU satisfied with Greece’s stability plan

BRUSSELS – The European Commission is expected to endorse today Greece’s updated forecasts on major macroeconomic indicators, but will warn of the need to speed up reform of the social security system and remark that Greece’s huge public debt is being trimmed at a far slower pace than originally envisaged. The medium-term forecasts are submitted annually by each state to the Commission as part of the EU’s Stability and Growth Pact, which aims at maintaining fiscal balances, or surpluses, and low inflation. Greece’s forecasts, as well as those of all other EU member states, have been revised downward because of the global economic slowdown, exacerbated by the effects of the September 11 terrorist attacks on the US. Because of the crisis, Greece has revised its 2002 gross domestic product (GDP) growth forecast several times, from over 5 percent to 3.8 percent. Similarly, for 2003 and 2004, it now forecasts annual growth of 4 percent, instead of the previous 5 percent. The Commission believes GDP growth, partly fueled by EU funds and the construction of venues and infrastructure for the 2004 Athens Olympics, to be Greece’s strongest point. These, by EU standards, are high growth rates: if Greece does achieve 3.8-percent growth in 2002, it will top all EU states for the first time since it joined in 1981. The Commission notes, however, that high growth presents inflation risks. The Greek government forecasts average inflation in 2003 at 2.8 percent, higher than the EU average. Another source of concern is the country’s debt, which is expected to drop from 99.6 percent of GDP in 1991 to 90 percent in 2004. The Commission is expected to say that according to initial forecasts, the debt was supposed to drop to 84 percent of GDP in 2004. The discrepancy is a sign of fiscal indiscipline. Budget surpluses, achieved for the first time in several decades in 2001, with a meager 0.1 percent of GDP, are expected to grow to 0.8 percent in 2002 and 1.1 percent in 2003 and 2004. At the least, Greece is now firmly moving into budget surplus territory, in contrast to Germany, once the model of fiscal rectitude. Germany and Portugal are expected to be reprimanded by the Commission for their broadening deficits.