Council Opinion

of 12 February 2002

on the updated stability programme of Greece, 2001-2004

(2002/C 51/04)

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 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 February 2002 the Council examined the 2001 update of the stability programme of Greece, which covers the period 2001-2004.

Real GDP growth remained robust in 2001, at 4,1 %, although lower than projected in the 2000 stability programme, as a result of the deterioration in the external environment. Inflation resurgence under the impact of increasing energy prices in 2000 started to decelerate since summer 2001 but the improvement might weaken in the coming months. The general government accounts are estimated by the updated programme to reach a 0,1 % of GDP surplus in 2001 (including non-budgeted UMTS receipts of 0,4 % of GDP) instead of 0,5 % of GDP as projected in the 2000 stability programme.

The updated stability programme projects annual real GDP growth of around 4 % in yearly average for the period 2002-2004 as against 5,4 % in the 2000 stability programme. The Council considers the projected real GDP growth, which should be underpinned by high private and public investment, as attainable. The Council notes that the budgetary projections remain in surplus throughout the period of the programme in both actual and cyclically adjusted terms and that they respect the close to balance or surplus requirement of the stability and growth pact.

The Council notes that the government debt ratio is currently expected to decline from 99,6 % of GDP in 2001 to 90,0 % of GDP in 2004 instead of 84,0 % of GDP as projected in the 2000 stability programme. The Council also notes that the improvement in the government balance in the period from 2002 to 2004 primarily relies on the steady reduction in interest payments; in contrast, no retrenchment in current primary expenditure is expected. Furthermore, the ratio of the general government primary surplus to GDP, although reaching a high level until 2004, progressively declines throughout the period. The Council strongly encourages the Greek authorities to set promptly a clear binding norm for current primary expenditure as it was recommended in its opinion on the 2000 stability programme(2).

The Council considers it is appropriate to keep high primary surpluses above 6 % of GDP and to pursue, if necessary, further budgetary adjustment effort, taking into account the high level of debt. In the short-term, vigilance should be maintained regarding price developments in particular with respect to the forthcoming wage negotiations. Furthermore, taking into consideration the still very high level of the government debt ratio, as well as the perspective of increasing budgetary costs stemming from the ageing population, the Council urges the Greek Government to take advantage of the current favourable macroeconomic situation to reduce the government debt as fast as possible. The Council notes that the debt reduction foreseen in the programme is much slower than what would be warranted by expected GDP growth and the projected primary surplus. The Council invites the authorities to provide more detailed information on financial operations in future programme updates in order to allow a better understanding of debt developments.

The Council notes that strengthening structural reforms is a key economic policy objective of the updated programme; the Council considers that although considerable progress has been made in recent years in this area, implementation of structural reforms must continue in the product, services and labour markets in order to enhance the efficiency of markets and the competitiveness of the economy; the Council encourages the government to proceed to the necessary reforms rapidly. The Council welcomes the intention of the government to implement reforms in the area of budgeting and management of expenditure in the public sector.

The Council welcomes the information provided in the updated programme on long-term sustainability of public finances. The Council considers that there is a serious risk of budgetary imbalances emerging in the future due to the ageing population and that there is a need to reform the public pension system. The Council notes that no progress was made in this area in 2001 and that the updated programme does not include any specific plans or timetable for pension reform. The Council recommends that the government proceeds to the reform of the pension system with no further delay.

(1) OJ L 209, 2.8.1997.

(2) OJ C 77, 9.3.2001.