The European Commission adopted a series of recommendations to ensure that the budget deficit of Greece is brought below 3% of GDP by 2012, that the government timely implements a reform programme to restore the competitiveness of its economy and generally runs policies that take account of its long-term interest and the general interest of the euro area and of the European Union as a whole.
More specifically, the Commission adopted an opinion on the Greek Stability Programme for 2010-2013, a Recommendation under Art 126(9) of the Treaty on the correction of the excessive deficit, a Recommendation under Art 121(4) of the Treaty on structural reforms and launched an infringement procedure to ensure the authorities comply with their duty to report reliable budgetary statistics. It is the first time that the budgetary and economic surveillance instruments foreseen in the Treaty are used simultaneously and in an integrated way. The Commission shares the ambitious budget-deficit reduction targets that the Greek government has set itself as well as the fiscal measures and structural reforms announced in the stability programme.
The Commission also welcomes the announcement by the Greek government, on Tuesday, of a set of additional fiscal measures (concerning the wage bill, excises on fuel and pension reform), to safeguard the budgetary targets set in the programme. It calls on Greece to spell out the announced fiscal measures and implementation calendar in the coming weeks and welcomes its readiness to adopt and swiftly implement additional measures if needed. The fiscal measures to be implemented in 2011 and 2012 should also be further detailed. Implementation of all the measures, including the reforms to increase the competitiveness of the economy in the field of pensions, healthcare, public administration, the functioning of product markets, labour market, absorption of structural funds, supervision of the financial sector, and statistics, will be carefully monitored through regular reports to be sent to the Commission by Greece.
"Greece has adopted an ambitious programme to correct its fiscal imbalances and to reform its economy. Yesterday's announcement strengthens the government's commitment to deliver the programme's objectives of more sustainable public finances and a more competitive economy. This is in the interest of the Greek people, who will benefit of better and more durable growth and job opportunities in the future, and it is in the interest of the euro area and of the EU as a whole. The Commission fully supports Greece in this difficult task," said Economic and Monetary Affairs Commissioner Joaquín Almunia, adding: " The Commission will monitor the execution of the budget and of the reforms very closely and regularly and welcomes the Greek government's readiness to adopt further measures as and when necessary ".
On 15 January, the Greek government submitted to the Commission its stability programme for the period 2010-2013 which envisages reducing the budget deficit by 4 percentage points to 8.7% of GDP in 2010 and thereafter to 5.6% in 2011, 2.8% in 2012 and 2% en 2013. The programme contains a package of concrete fiscal consolidation measures for 2010, with an estimated quantification for each of the measures, as well as a timeframe for their adoption and implementation. On the revenue side it includes the elimination of tax exemptions, the rise of excise duties on tobacco and alcohol and measures to fight tax evasion. Regarding expenditure, the government will cut public servant allowances, freeze recruitment in 2010 and will only recruit 1 for every 5 civil servants retiring thereafter. The government has also set up a contingency reserve and frozen all budgetary appropriations per ministry by 10% and already adopted nominal cuts in public consumption and operational expenditure. The programme also outlines a number of structural reforms aimed at improving the budgetary framework and the efficiency of public spending, enhancing investment and improving the functioning of labour and product markets. After the submission of the stability programme, the Greek government announced further measures concerning public wage, excises on fuel and pension reform. The Commission asks Greece to spell out the implementation calendar of these measures within one month. The plans for 2011and 2012 also need to be detailed in the coming months.
Given the state of the public finances in Greece and the persistent external imbalances, which result from accumulated competitiveness losses, and in order to allow for simultaneous discussion by the Council of fiscal policy and structural reforms, an integrated approach to the enhanced surveillance mechanism is being adopted.
The Commission recommends to the Council that Greece adopts a comprehensive structural reform package aimed at increasing the effectiveness of the public administration, stepping up pension and healthcare reform, improving labour market functioning and t he effectiveness of the wage bargaining system, enhancing product market functioning and the business environment, and maintaining banking and financial sector stability . This recommendation is made under Article 121(4) of the Treaty, ‘ with a view to ending the inconsistency with the broad economic policy guidelines and the risk of jeopardising the proper functioning of the monetary union’. The recommendations are largely included in the stability programme but require clarification in some cases.
The Commission has also adopted a recommendation under Article 126.9 of the Treaty on the excessive deficit procedure (formerly 104.9), whereby Greece is required to follow the adjustment path outlined in the 2010 stability programme in terms of nominal deficit, structural deficit and change in debt levels, and detail the measures to be implemented. The recommendations include measures to be implemented already in 2010, such as a reduction in the overall public sector wage bill, including through the replacement of only 1 of 5 retiring civil servants, progress with healthcare and pension reforms, the set up of a contingency reserve amounting to the 10% current expenditure, tax and excise duties increases and tax administration reform. In the medium term, Greece is required to implement further adjustment measures of a permanent nature, continue with tax administration reforms and improve the budgetary framework.
Considering that Greece has failed in its duty to report reliable budgetary statistics, as seen again in October with a significant revision of data for 2008, the Commission is also initiating infringement proceedings, requesting the government to take all necessary steps to ensure that the systemic failures and weaknesses identified in the recent Commission report are corrected. Greece is asked to cooperate with the Commission so as to promptly agree on an Action Plan to tackle statistical, institutional and governance deficiencies, including the adoption, by 15 May, of legislation that makes compulsory to provide public reports on budgetary execution on a monthly basis, the obligation for social security funds and hospitals to publish accounts and enhanced control mechanisms and effective personal responsibility in the statistics and general accounting offices as well as receive the appropriate resident technical assistance for the compilation of reliable statistics.
Greece is required to submit a first report in mid March 2010, spelling out the implementation calendar of the measures to achieve the 2010 budgetary targets, standing also ready to adopt additional measures if needed, and quarterly integrated reports from mid May 2010 on the implementation of the recommendations, including on the reforms.
The Commission's integrated recommendations will be discussed at the February Eurogroup and ECOFIN meetings.
The related documents are available at:
http://ec.europa.eu/economy_finance/articles/sgp/2010_02_03_sgp_en.htm
By: N. Peter Kramer
