Greece: Stabilility Plan Calls for 2.6% Deficit in '06

--------------------------------------------------------------------------------

09:46 - 16 December 2005 - The revised Stability and Growth plan for 2006-2008 will be submitted to the EU Committee today, according to which the base case scenario calls for GDP growth of 3.8% and fiscal deficit at 2.6% of GDP in 2006.


The Greek government has formed however an alternative scenario calling for GDP growth of 3.4% for all three years and a fiscal deficit of 2.7% of GDP in 2006.
Economy and Finance Minister George Alogoskoufis presented the key points of Greece's Updated Stability and Development Programme for 2005-2008, that will be reviewed in Brussels on Friday.

The new programme calls for an increase of growth rates combined with a reduction of the fiscal deficit and public debt as employment rises and unemployment decreases.

The minister said that the government's main concern in 2005 had been to achieve satisfactory rates of growth and thus avoid a recession, stating that this effort will continue in 2006.

The increased growth is expected to result from rising growth rates throughout the European Union and also the continuing structural reforms to the Greek economy.

The Programme also forecasts a gradual decline in inflation, which is expected to stand at 3.5% in 2005 and then drop to 3.2% in 2006 and 3% in 2007, finally reaching 2.7% in 2008.

The Programme forecasts a drop in unemployment from a 10.4% average for 2005 to 9.8% in 2006, 8.9% in 2007 and 8% in 2008.

The public deficit is expected to drop from 4.3% of GDP in 2005 to 2.6% of GDP in 2006, 2.3% of GDP in 2007 and 1.7% of GDP in 2008.

At the same time, the public debt is forecasted to drop down to 104.8% of GDP in 2006, 101.1% of GDP in 2007 and 96% of GDP in 2008.

The minister said that the Program will include tax reductions for individuals for 2007 and envisaged increases to the OGA agricultural pensions and the EKAS low-pension supplement that will be given in two installments (in 2007 and in 2008).

The minister also mentioned an increase in tax revenues from VAT, which came to 9.3% in October and 11.6% in November and said that the finance ministry works on a campaign against tax evasion.

Recall that the plan is subject to Eurostat’s approval of the temporary non-tax revenues of €1.5bn, which will be decided in the beginning of January.



http://www.reporter.gr/fulltext_eng.cfm?id=51216094636

Without bold reforms stability program will remain on paper only
By Nikos Nikolaou - Kathimerini

The government’s fiscal stability and development program, which it submitted to Brussels on Thursday, portrays its intention to implement an extensive series of important structural reforms, and as such it is encouraging. Indeed, if it is not a map exercise but a well-structured program with realistic targets, it is obvious that Greece cannot achieve a growth rate of 3.8 percent in 2006 and 2007, and raise it to 4 percent in 2008 without sound structural changes.

To be sure, Greece managed to maintain a satisfactory growth rate this year, projected at 3.6 percent — double the eurozone average. And it is an indisputable success on the government’s part that it achieved this at a time when it imposed serious cuts on public spending in order to lower the deficit.

This success was basically due to the government’s mild fiscal adjustment policy, which particularly saved the budgets of the lowest-income families from severe burdens. However, we should note that, besides private consumption, growth has also been kept brisk with consumer and mortgage loans, which have been favored by low interest rates.

But because from next year fiscal adjustment will become stricter, as the country has to bring its fiscal deficit below the EU-mandated 3 percent ceiling, the flow of public money to the economy will fall and private consumption will be affected accordingly. The stability program provides for real salary increases of 1.7 percent in the next three years, from 2 percent this year and 3.3 percent in 2004. At the same time, the projected gradual ascent of interest rates is bound to slow down the growth of mortgage and consumer loans.

This prospect of a shrinking demand obligates the government to adopt supportive measures for growth in the areas of private investment and in structural changes.

The prospects for investment do not look particularly good. Despite the ample liquidity in the market and the high profitability of listed companies (up an average of 40 percent from last year), investment in industry and tourism has not picked up. We have only seen big investment in big malls.

If private investors have available capital and do not invest it, it means that they are not happy with the business environment. The government, therefore, must proceed to bold reforms which will free the productive forces of the economy and improve the investment climate. The recent labor reform in public utilities is historic but a lot remains: a simplification of the tax system, a reduction in red tape, making zoning legislation much clearer, and, finally, the establishment of a transparent environment which will eliminate corruption.

The government must set the pace for such changes next year with a bold privatization program which will attract from abroad significant amounts of capital, dynamic entrepreneurs and, above all, know-how and innovative ideas. If such changes are not forthcoming, the stability program is bound to remain a map exercise.


http://www.ekathimerini.com/4dcgi/_w_artic...7/12/2005_64267

GREECE PRESENTS UPDATED STABILITY AND GROWTH PROGRAMME FOR 2005-2008
Athens, 27 December 2005 (15:43 UTC+2)


Restoring fiscal balance, improving business environment and strengthening Greece's role in the world market are the main priorities of an Updated Stability and Growth Programme 2005-2008, published on Tuesday.

The programme envisages strong growth rates in the 2006-2008 period, with average growth rates of 3.9 percent annually. Strong growth will result from an increase in public investments in combination with higher private investments and a strong private consumption in the country.

Greece's Economy ministry expects corporate profits to grow further due to a 10 percentage point cut of tax factors in the 2005-2007 period (to be introduced in three stages).

Profitability also will be supported by the introduction of a new investment law aimed to expand business and investment activity in the country. Credit expansion towards the private sector (households and enterprises) is expected to continue growing at high rates without raising the risk for the country's financial sector.

The programme envisages that a strong and dynamic growth would be supported by structural reforms aimed to boost productivity and employment. Reforms are expected to contributed in accelerating GDP growth rates and to support growth in regional Greece.

Employment is forecast to increase by an average 1.6 percent annually over the 2006-08 period, with unemployment rate expected to drop from 10.4 percent of the workforce in 2005, to 9.8 pct in 2006, 8.9 pct in 2007 and 8.0 pct in 2008. The updated stability programme also envisages a slowdown in the inflation rate from 2006 onwards.

The programme projects that Greece's fiscal deficit will drop below 3.0 pct of GDP by the end of 2006. The government's 2006 budget plan envisages a general government deficit at 2.6 pct of GDP this year with fiscal adjustment based on reducing spending and boosting revenues.

General government spending are forecast to drop to 44.7 pct in 2006 from 48.2 pct in 2004, while the fiscal deficit is projected to fall to 1.7 pct of the country's GDP by 2008.

The general government's debt is expected to ease from 107.9 pct of GDP this year to 104.8 pct in 2006, 101.1 pct in 2007 and 96.8 pct in 2008.

The government's updated stability programme also aims to ensure the long-term viability of the pension system and of the country's fiscal condition. The programme envisages the introduction of a new draft law on state procurement aimed to cut costs by 15 pct.


http://www.mpa.gr/article.html?doc_id=560362