WRITTEN QUESTION E-3730/98

by Antonios Trakatellis (PPE) to the Commission

(11 December 1998)

Subject: Deficits of public enterprises and organisations and Greece's membership of EMU

The Commission's recommendations in its "Broad economic guidelines for 1998" state that the public deficit in the Community should be less than 2 % of GDP in 1998, to be achieved largely through fiscal reform. The Commission also stresses that, despite Greece's efforts, its public deficit in 1997 was 4 % of GDP. It, therefore, calls for further efforts to achieve fiscal reform by introducing the stringent measures that the Greek Government announced it would take when the drachma entered the Exchange Rate Mechanism of the EMS. According to the Commission's recent estimates, the average budget deficit in the EU will be restricted to 1,8 % in 1998, whereas in Greece the forecast is for a slight deterioration. The Ecofin Council in October noted that the objective of the Greek convergence programme in terms of the public deficit for 1998 was optimistic (2,4 %) and that, accordingly, additional measures were required.

1. Given that the deficits of public enterprises and organisations are the bane of the Greek economy, draining the public coffers as they do and constantly increasing rather than falling, is it consistent with Community rules for the State to persist in pumping money into these deficits in an uncontrolled manner and how is this policy compatible with Greece's efforts to achieve genuine (rather than nominal) convergence for entry into EMU?

2. How is the constant supply of Community funds to public organisations and enterprises, through the 2nd CSF and other Community resources, when they have huge debts and deficits which are covered by the national budget - as is the case with Greek Railways with its operating loss of DR 550 billion; OASA with DR 950 billion and Olympic Airways with ECU 2 059 million for 1990-1995) etc. - consistent with the fact that they do not implement plans to restructure their operations and make them viable?

3. How are the cuts in public investment and the decrease in take-up of Community appropriations for major development projects (Via Egnatia, natural gas, land register, health, education etc.) in a bid to pay off counterproductive public deficits compatible with the aims of economic development?

4. To what extent can the Community's rules on competition and fiscal reform be implemented across the board in all public enterprises and organisations to ensure that Community and national resources, as well as state aid, are used for development purposes?

Answer given by Mr de Silguy on behalf of the Commission

(15 February 1999)

1. The Greek government has recognised the need for structural reform in the wider public sector in order to enhance the potential and the efficiency of the Greek economy. The package of accompanying measures announced on 14 March 1998, on entering the exchange rate mechanism (ERM) included, among other measures, a wide-ranging privatisation plan for 1998 and 1999 and a medium-term programme for the restructuring of loss making public corporations. Greece has made significant progress in reducing fiscal imbalances in recent years. The general government deficit was reduced to 4 % of gross domestic product (GDP) in 1997 from 13,8 % of GDP in 1993, and is estimated by the Greek authorities at 2,2 % of GDP in 1998. Furthering fiscal adjustment and structural reform have been reaffirmed in the convergence programme, covering the period 1998-2001, submitted by Greece under the stability and growth pact Council regulations. The Ecofin Council examined, on 12 October 1998, the Greek convergence programme and issued an opinion on a Commission recommendation in accordance with Council Regulation (EC) 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1). The Council considered that the programme was compatible with the broad economic policy guidelines and was an important step in the direction of the requirements of the stability and growth pact. The Council urged the Greek government to implement the programme vigorously and to take the necessary measures to achieve its targets, which include the reform of the wider public sector.

2. The primary objective of structural funds and the Cohesion fund is to promote economic development by financing projects which contribute to achieving this objective. Main criteria for Community co-financing are therefore the eligibility of projects, as for example defined in the Greek Community support framework (CSF), and their efficient implementation. The allocation of these Community funds is not directly conditional upon the structure of a beneficiary organisation or enterprise as long as efficient management of projects is ensured.

3. The economic performance of several Member States has provided evidence that macroeconomic stability, including a low public deficit, is a necessary condition for economic development. In these successful cases reductions of public expenditure have mainly been implemented by reducing public consumption while maintaining a high level of public investment. In the context of the structural funds the principle of additionality aims to ensure that the level of national public eligible expenditure is not reduced compared to the previous programming period. However, methodological problems of data provided by the Greek authorities have not yet allowed the Commission to confirm that additionality has been respected during this programming period.

4. The Community has made the whole area of Greece eligible for assistance under objective 1 of the structural funds, for the Cohesion fund and for state aids under Article 92.3(a) of the EC Treaty with the aim of promoting the Member State's economic development. As mentioned above, assistance under these schemes depends mainly on the efficiency of projects to contribute to the development objective. In view of the principle of subsidiarity, the EC Treaty provides the Community with hardly any powers to interfere directly into the organisational structure of a Member State's public sector. Exceptions are restructuring conditions linked to the authorization of state aids and provisions in the context of the liberalisation of network industries.

In terms of state aids, Article 92.2 and 92.3 of the EC Treaty provide derogations to the general ban of Article 92.1. The compatibility of aid with the common market under Article 93.2(a) and (c) is assessed through specific criteria covered by the guidelines on national regional aid. Regional aid can be authorised in these regions as long as it specifically aims at their development by supporting investment or job creation in a sustainable context. The guidelines also specify ceilings for the aid intensity which take into account the nature and importance of the regional problems being addressed. Other frameworks for state aid control take into account development by authorising higher aid intensities in assisted regions.

(1) OJ L 209, 2.8.1997.