November 12, 2003
1) The Greek economy is among the fastest -growing economies in the Eurozone and yet its budget deficit as a percentage of GDP is getting bigger. In this context, shouldn’t fiscal policy be stricter to help bring the public debt-to-GDP ratio to much lower levels?
ANSWER: The general government deficit is under control. Greece made enormous progress in the last 8 years in consolidating its public finances and bringing the deficits down from over 10% of GDP to around 1% – 1,5%. Greece gained credibility in its economic policy and is unwilling to lose it. The years 2003 and 2004 are special, however. These two years are absorbing most of the cost of the Olympic games. The games are financed through public funds and they are putting pressure on the budget.
This is revealed in the primary surplus, which will temporarily decline to 2.1% of GDP from earlier levels of 3% and higher. Thanks to low interest rates, however, the effect on the deficit will be small, bring it to 1,4% of GDP in 2003 and1,2% of GDP in 2004. If I may add, the cost of the Olympic games will be recouped after 2004, when many of the construction projects will be privatized. So the temporary dent on the deficits now automatically lead to temporary surpluses in the years 2005 and 2006.
It follows that the target of much lower general government debt-to-GDP ratio will be achieved as well.