Greeks face budget hangover after Olympic year of excess

By Anna McLauchlin

Date: 10/02/05

Greece's deficit is set to top 6% of gross domestic product (GDP) when Athens releases its new figures at the end of the month, European Voice has learrned. On Wednesday (9 February), the European Commission proposed giving Greece until 2006 to get its budget books in order, a decision that still has to be rubber-stamped by EU finance ministers on 17 February.

The Commission's latest predictions see Greece's deficit for 2004 coming in at 5.5% of GDP after the Greek government last year admitted that the previous administration had under-reported its defence-related spending and recalculated its budget figures.

But a source told European Voice that reports that the revised figure would be around 6% of GDP were "not that outrageous", because of a shortfall in revenue and higher than planned spending, largely because of the 2004 Olympic Games.

That means that Greece will have more to do to bring its deficit below the EU's benchmark level of 3% of GDP next year.

In its recommendation on Wednesday, the European Commission said it expected Greece's deficit to be revised "considerably upwards" and as a result gave Athens an extra year to slash its deficit to 3% as demanded by the EU's Stability and Growth Pact.

Under the current pact member states should have only one year to correct an excessive deficit - above 3% of GDP - but the Brussels executive granted France and Germany the same favour in November 2003, albeit outside the Pact's legal framework.

And the Commission warned Athens it would monitor its finances to ensure that its 2005 budget was fully implemented. Under this budget Greece will cut its deficit to 2.8% this year, although the Brussels executive has already warned it expects 3.6%.

Greek Finance minister Yiorgos Alogoskoufis must submit further plans on how he will reduce the government's deficit below 3% by 21 March. Alogoskoufis has already written to Economic and Monetary Affairs Commissioner Joaquín Almunia to ask for more time to revise his annual stability programme, claiming that Greece is still processing data from social insurance funds and hospitals.

For the recommendations to come into force, EU finance ministers must approve them by qualified majority when they meet for the monthly Ecofin Council on 17 February. A Greek official confirmed that Alogoskoufis would not try to convince his peers to side-step the pact as France and Germany did in 2003.

Ministers will also discuss potential changes to the Stability and Growth Pact, which are likely to include similar flexibility in the timeframe for governments to rein in their spending. They are to make a final decision on modifications to the pact so that the European Council can endorse it on 22 March.

"By being the first country to accept the two years to bring down its deficit, Greece has saved the Stability [and Growth] Pact in a way," said one Greek official. "It has given it credibility where it didn't have it before."

Article says that Greece's deficit is set to top 6% of gross domestic product (GDP) when Athens releases its new figures at the end of Feburary 2005. On 9 February 2005, the European Commission proposed giving Greece until 2006 to get its budget books in order, a decision that is due to be rubber-stamped by EU finance ministers on 17 February. The shortfall in revenue, and higher than planned spending, is said to be largely caused by the 2004 Olympic Games.