COUNCIL OPINION

of 31 January 2000

on the updated convergence programme of Greece, 1999 to 2002

(2000/C 60/04)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1), and in particular Article 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 31 January 2000 the Council examined the 1999 update of the convergence programme of Greece which covers the period 1999 to 2002. The Council notes that the 1999 update maintains as a central objective the compliance with the convergence criteria which will allow Greece to participate in monetary union from January 2001. The budgetary and structural policies outlined in the programme are in compliance with the 1999 Broad Economic Policy Guidelines.

The Council notes with satisfaction the significant improvement in public finances in recent years. Developments over the past year indicate that the budgetary target set in the 1998 convergence programme has been met: the general Government deficit is estimated at 1,5 % at the end of 1999, 0,6 % of GDP lower than projected in the 1998 programme; the debt ratio was reduced by 1,2 percentage points to 104,2 % of GDP.

The updated programme is based on macroeconomic projections showing strong investment-led growth and medium-term price stability. The 1999 update, building on the budgetary consolidation achieved so far and on good prospects for GDP growth, is projecting the general Government deficit to turn to a surplus of 0,2 % of GDP in 2002. The debt ratio is projected to fall to 98,0 % of GDP in 2002. The Council considers that the underlying budgetary position of the general Government provides an adequate safety margin in the course of the programme to prevent the deficit from breaching the 3 % of GDP threshold in normal circumstances. In this sense, the updated convergence programme complies with the requirements of the Stability and Growth Pact.

Considerable progress has been made over the past year in reducing price inflation; the deflator of private consumption exceeded marginally the projection of the 1998 programme in 1998, while no deviation is estimated for 1999 from the projected average rate of increase of 2,5 %; however, the increase in oil prices is slowing down the process of disinflation at present.

The Council considers that within the high growth environment projected in the convergence programme, particular effort must be made by Greece to ensure that the progress made towards disinflation acquires a lasting character; such an effort seems to be all the more necessary in view of the convergence of monetary conditions in Greece to those prevailing in the euro zone and the potential implications of such a development on demand and prices; in this context, the Council welcomes the revaluation of the central rate of the Greek drachma as from 17 January 2000 which will support the authorities in their efforts to further reduce inflation in Greece; the Council invites the Greek Government to reinforce the anti-inflationary stance of the policy instruments at its disposal, including budgetary and incomes policies; the wage agreements in 2000 in both public and private sectors and the cooperation of all social partners are essential to secure an environment of low-inflation. As regards budgetary policy, the budgetary targets set in the programme are considered by the Council as a minimum and the Greek authorities are invited to do their best to achieve better outcomes than planned; in addition, the Council considers that the Greek authorities must be ready to tighten fiscal policy further from 2001 if inflation pressures emerge.

The Council acknowledges that considerable progress has been made in recent period in Greece in introducing structural reforms, namely in the functioning of the wider public sector; it invites the Greek government to continue decisively in this direction by accelerating the pace of the necessary reforms with a view to enhancing competitive conditions and the good operation of labour, goods and capital markets; such reforms are necessary both in order to enhance the productive potential of the economy and to reduce inflationary pressures.

(1) OJ L 209, 2.8.1997, p. 1.