Council Opinion

of 12 February 2001

on the stability programme of Greece, 2000-2004

(2001/C 77/01)

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(2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 February 2001, the Council examined the first stability programme of Greece which covers the period 2000-2004. The stability programme was submitted by the Greek Government within six months of the Council Decision of 19 June 2000 on the adoption by Greece of the single currency on 1 January 2001(2).

The stability programme is projecting robust real GDP growth rates, accelerating from 4,1 % in 2000 to 5,5 % in 2004, supported by high investment rates, strong exports and sustained private consumption. The Council considers the real GDP growth forecasts included in the stability programme as ambitious, at the upper range of possibilities. The programme presents also an alternative scenario projecting lower, though still robust, real GDP growth based in particular on a higher assumption for imported oil prices.

On the basis of the baseline macroeconomic scenario, the programme is projecting a general government surplus of 0,5 % of GDP in 2001 which will rise to 2 % of GDP in 2004. The programme is based on the fiscal consolidation strategy followed until now by the Greek convergence programmes, consisting in maintaining high primary surpluses supported, however, by a significant reduction in interest payments as percent of GDP, resulting from lower interest rates and a declining government debt ratio. The general government debt ratio is expected to decline by 20 percentage points of GDP, to 84,0 % of GDP in 2004.

The Council considers that the projected budgetary position provides adequate safety margin against breaching the 3 % of GDP deficit threshold in normal circumstances and is in conformity with the requirements of the stability and growth pact. The Council commends the fiscal consolidation strategy of the programme, centred on high primary surpluses, which is essential in reducing rapidly the still very high government debt ratio and prepares for future challenges, notably the budgetary burden from ageing population. The Council considers, however, that such a strategy should be primarily based on an adequate control of primary expenditure increase through clear and binding norms with the aim of reducing the current expenditure ratio.

The Council warns that under conditions of high GDP growth, according to the projections, combined with easing monetary conditions, renewed inflationary pressures may persist; the Council considers that risks of overheating of the economy need to be contained through determined support from domestic policies, mainly a tight fiscal stance, in particular through restraint on current expenditure, and by ensuring wage moderation.

The Council notes that the programme includes a number of market liberalisation measures, the setting-up of an appropriate regulatory framework and structural reforms in the labour, product and capital markets while a reform of the social security system is announced for 2001. The Council considers, however, that the ambitious growth and employment objectives of the stability programme, and future challenges, require a more determined attitude in the reform effort; the Council encourages the Greek Government to accelerate the implementation of necessary reforms, in particular in the labour market and the social security system, in order to enhance the potential of the economy, strengthen its competitiveness and improve the conditions for sustainable growth and employment creation.

The Council considers that the stability programme is consistent with the broad economic policy guidelines. The Council invites the Greek authorities to pay particular attention to the need for reform of the pension system, and invites them to address the budgetary consequences of ageing in the next update of the stability programme.

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

(2) OJ L 167, 7.7.2000, p. 19.