Commission initiates budgetary surveillance for Greece, Brussels, 19 May 2004

62) that the Greek government deficit was at 3.2% of GDP in 2003. The latest data provide prima facie evidence of the existence of an excessive deficit in Greece. On that basis the Commission adopted today a report on the budgetary situation in Greece as required by Article 104(3) of the Treaty. The report notes that the excess over the 3% threshold did not result from an unusual event outside the control of the Greek authorities or a severe economic downturn. On the contrary, Greece had strong economic growth, on average above 4% in the period 2000-2003. According to the Commission forecast the Greek deficit is also likely to remain above 3% of GDP in 2004. Moreover, the high level of government debt and the slow pace of debt reduction are a cause of concern. The Economic and Financial Committee will adopt an opinion on this report within two weeks. The Commission will then recommend further steps required by the excessive deficit procedure in time for the ECOFIN Council of 5 July.

The Commission report on Greece is adopted on the initiative of Joaquín Almunia, EU Commissioner for economic and monetary affairs.

In the report adopted today, the Commission concludes that Greece’s public finances show large imbalances, inconsistent with a prudent fiscal policy. Moreover, the quality of data is not satisfactory. Deficit figures in particular remain subject to potentially significant upward revisions in the September 2004 EDP Notification. As indicated in the Commission Spring 2004 forecast (IP/04/466), according to the latest revision (STAT/04/62), the general government deficit reached 3.2% of GDP in 2003. This compares with a deficit of 1.7% of GDP according to the original notification sent in early March. Eurostat has verified the revised data but is not yet in a position to fully certify the deficit and debt data for 2003 (and possibly for previous years) due to: (i) under-estimation of government expenditure for the procurement of military equipment; (ii) lack of reliable information for recent years concerning the surplus notified for the sub-sector Social Security Funds.

Against this background, the general government deficit of 3.2% of GDP in 2003 came about in a context of strong economic growth and with a further widening of a positive output gap. Following an average GDP growth of 2.9% in the period 1995-1999, growth accelerated to an average of 4.1% in the period 2000-2002 and to 4.2% in 2003. The excess of this deficit over the 3% of GDP Treaty reference value did not therefore result from an unusual event outside the control of the Greek authorities, nor is it the result of a severe economic downturn in the sense of the Stability and Growth Pact.

The breach of the 3% of GDP reference value appears due to a revenue shortfall and to higher than planned primary spending, including extraordinary funding, in particular related to the preparation of the Olympic Games.

Given the positive and widening output gap in 2003, the sharp rise in the cyclically adjusted deficit from 1.7% of GDP in 2002 to 3.9% of GDP in 2003 indicates a pro-cyclical, expansionary fiscal stance. According to the Commission’s spring forecasts, based on announced policies, the general government deficit would remain above the 3% reference value in 2004. Moreover, the high level of government debt and the slow pace of debt reduction are a cause of concern. The gross government debt is estimated to decline only slightly to 102.8% of GDP in 2004 from 103.0% of GDP in 2003, thus remaining widely in excess of the 60% of GDP Treaty reference value.

The full text of the Commission’s report on Greece is available on:

http://europa.eu.int/comm/economy_finance/about/activities/sgp/procedures_en.htm