The cost of spectator sports

An old political act is harder to play

THE script looks very familiar, especially in southern Europe. A party takes power and reports, on examining the state coffers, that they are in an even worse condition than anybody imagined. Wringing their hands in shock, the new masters say they will fix the damage as fast as they can.

This was an easy drama to present as long as the players, and the audience, were mostly domestic. But in the era of the euro zone, when the show is watched in Brussels too, the spectators are more demanding, and they can do more than say boo.

Still, why spoil a good show? Portugal's political class has been through the script twice; José Socrates, the centre-left prime minister since February, is now playing the lead role. An audit he sought from the central bank showed this week that the deficit could soar to almost 7% of GDP this year. This would be the biggest breach by any country of the 3% limit set by the European Union when the euro began in 1999.

In 2002, the protagonist was José Manuel Barroso, then a centre-right prime minister, now head of the European Commission. The audit he ordered back then showed the previous Socialist government had run up a deficit of 4.2% of GDP, making Portugal the first country to face sanctions for violating the rules. He raised taxes, froze public-sector wages, closed state bodies and sold assets.

But after three lean years, Portugal is further than ever from a balanced budget, and it faces another austerity package. One reason is that one-off measures, from selling tax arrears to international banks to grabbing pension funds from state firms, took priority over deeper reforms to stem spending on public-sector wages, social security and health. The central bank says the 2004 deficit, officially 2.9% of GDP, would have been 5.2% without “cosmetic” measures. Mr Socrates vows to stop such tricks and tackle root causes. He wants three years to get the deficit below 3%.

Meanwhile, Greece remains under scrutiny by Eurostat, the statistical service, after last year's crisis in its euro-credibility. Greece has escaped being fined, but it is not out of the woods. A two-year programme agreed with the commission calls for cutting the deficit from an estimated 6.5% of GDP in 2004 to 3.5% this year and 2.8% in 2006. Achieving this depends on high growth - this year's target is an ambitious 3.9% - and taking more tax.

But there are signs of post-Olympic fatigue, with private investment slowing and only marginal increases in tax intake. This week the OECD predicted growth of just 2.8% this year. This would mean the deficit shrinking more slowly, to 3.8% of GDP this year and 3.5% in 2006. A desperate rush to be ready for the Olympics, which pushed up the cost of the games from €4.6 billion to €7.2 billion, has accounted for about half the deficit overrun. Most of the rest came from restating the national accounts between 2000 (when Greece joined the euro zone) and 2003, to include $10 billion worth of arms purchases. The deficit topped the euro-zone ceiling of 3% of GDP in each year as a result.

George Alogoskoufis, the finance minister, says the revision was made to improve transparency. His Socialist predecessor, Yannos Papantoniou, said it was done to make the Socialists look bad and make it easier for the current government to keep the deficit below limits. The Socialists claim they followed EU rules that allow arms purchases to be paid off in instalments. However, Greece's reputation was damaged when Eurostat examined the accounts for 1998 and 1999 - the benchmark years for its euro-entry - and found the deficit exceeded the 3% ceiling in both years. In euro-land, dumping on your predecessor means dumping on your country.

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