Election talk bends budget

Senior Finance Ministry officials are pushing forward their request to Prime Minister Costas Karamanlis to call early elections in a bid to ease pressure on the government budget, according to sources. The conservative government’s four-year term ends in March 2008 and Karamanlis has said that national elections will be held at the end of the scheduled period, but Finance Ministry officials oppose this strategy. Sources said the current unofficial pre-election period in the country is putting pressure on the Finance Ministry to make populist decisions and agree to costly handouts. This sort of policy could derail all the progress made with regard to the budget in the last few years, according to a government source. Greece managed to reduce its budget deficit to below 3 percent of gross domestic product (GDP) in 2006 – for the first time since it joined the eurozone in 2001. Data indicate that budget deficits tend to shoot up when governments have exhausted their full four-year term. The budget deficit in the 1981 election year rose to 8.7 percent of economic output from 2.6 percent in the previous year. In 2004, the deficit was also high, reaching 7.9 percent of GDP. Budgetary pressure is also created on the revenue side as checks by tax officials go down a gear – something which harms state revenue collection rates. A slackening of budgetary pressure could also weigh on broader investor confidence in the economy as fiscal discipline is one of the key factors in investment decisions. Finance Ministry officials have already started preparing the 2008 budget, which is likely to be made public in October.

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