COUNCIL OPINION of 12 October 1998 on the Convergence Programme of Greece, 1998-2001 (98/C 372/02)

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(1) and (2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Monetary Committee,

HAS DELIVERED THIS OPINION:

On 12 October the Council examined the Convergence programme for Greece which covers the period 1998-2001. The Council notes with satisfaction that the primary objective of the programme is the fulfilment by Greece of the conditions allowing for a full participation in the Euro-area from 1 January 2001. The Council therefore considers appropriate the focus of the programme on disinflation and budgetary consolidation. Moreover, the Council considers that the programme is consistent with the Broad Economic Policy Guidelines.

The programme is built upon a macro-economic forecast showing strong investment-led real growth coupled with declining inflation which is expected to be underpinned by lasting wage moderation and fiscal adjustment. The Council notes that securing high growth together with disinflation requires, inter alia, of good performance of the supply-side of the Greek economy.

Wage developments are crucial if inflation is to be brought down on a durable basis. The Council welcomes the wage agreement covering 1998-99 and urges all those involved to implement it rigorously. The Council emphasises the need to strengthen wage moderation for the following years of the programme on the basis of the programme's targets for inflation. The Council considers that the Greek Government should be ready to take the necessary measures to secure durable progress in disinflation.

The Council commends the programme's strategy of bringing about the reduction of the deficit to 0,8 % of GDP in 2001 through the containment of primary current expenditure, thus allowing for a rising level of Government investment. In this context the Council considered that the definition of an ex ante and binding norm for the control of primary current expenditure would have been welcome. In the short term, the Council urges the Greek Government to achieve the 2,4 % of GDP target for the general Government deficit in 1998.

The Council notes that the Government gross debt ratio is still very high in Greece and that it is important to secure that during the programme period the reduction of the deficit is reflected to a larger extent in the reduction of the debt than was the case up to now. Moreover, greater use should be made of privatisation receipts to reduce the Government debt.

The Council welcomes the structural reforms included in the programme which are geared towards the labour market, the social security system and the wider public sector. The Council urges the Greek Government to implement them as scheduled and pursue further the reform effort in order to enhance the potential and efficiency of the Greek economy.

The underlying budgetary position corresponding to the deficit target of 0,8 % of GDP in 2001 provides a safety margin against breaching the 3 % of GDP threshold as a result of normal cyclical fluctuations. In this sense, the programme is an important step in the direction of the requirements of the Stability and Growth Pact. The Council urges the Greek Government ot implement the programme vigorously and to take the necessary measures to achieve its targets, even if the macro-economic environment is less favourable. This would represent an impressive correction of the fiscal imbalances which have for long been a feature of the Greek economy. The Council notes that, after the convergence programme has been submitted, the Greek government has announced its intention to target a general government deficit which is less than the programme's target of 2,1 % GDP for 1999. A significant reinforcement of the pace of the fiscal adjustment, if confirmed through the whole period of the programme, would be most welcome to the Council.

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