Updated stability programme of Greece, 2007-2010 - Main contents

EN

Official Journal of the European Union

C 74/33

On 4 March 2008, the Council examined the updated stability programme of Greece, which covers the period 2007 to 2010 (2).

Over the recent years, Greece has recorded high growth rates driven by buoyant private consumption and dynamic investment activity, while employment growth accelerated significantly. However, relatively high inflation differentials with the euro area persist, and, in spite of a significant productivity growth, is leading to competitiveness losses.

The high and widening external imbalances, that are partly explained by one of the highest investment ratios in the EU, if continued in the medium term, might affect the performance of the economy. In this context, fiscal policy has a crucial role to play in stabilising the economy, improving its efficiency and diminishing the risks associated to overheating and widening external imbalances. Significant progress has been made since 2004 to consolidate public finances in a sustainable manner. On that basis, controlling current primary expenditure, preventing a pro-cyclical stance of fiscal policy and stepping up public spending efficiency are paramount to further securing fiscal discipline and improving the quality of public finances. Given the still high public debt level, the long-term sustainability of public finances greatly depends on achieving and sustaining sound budgetary positions, continuing the on-going reforms in the healthcare system and implementing comprehensive reform of the pension system (3).

The macroeconomic scenario underlying the programme envisages that real GDP growth will be sustained at about 4 % on average over the programme period. Assessed against currently available information (4), this scenario appears to be based on favourable growth assumptions, in particular in the outer years. In particular, private consumption and investment growth are projected in the stability programme to remain favourable, on the back of somewhat high employment growth and an optimistic assessment of the impact of some implemented measures, such as the second phase of tax reform including further reduction in personal tax rates, legislated in 2006, the investment incentive law and the speeding-up of PPP (public-private partnerships) projects.

Moreover, the evolution of labour cost may induce inflationary pressures, despite the wage restraint in the public sector, while competitiveness could deteriorate more than foreseen in the programme. In addition, on recent information, the inflation projection may be subject to upside risks.

According to the programme, the general government deficit for 2007 is estimated to have rebounded to 2,7 % of GDP in 2007 (from 2,5 % in 2006), compared to the target deficit of 2,2 % of GDP set in the previous update (5). This deviation of 0,5 percentage point of GDP reflects, in addition to a small negative base effect, an expenditure overrun of some 0,25 percentage point of GDP and a net deficit-increasing impact of one-offs of 0,3 percentage point of GDP (6). The projected deficit outturn in the Commission services' autumn 2007 forecast is 2,9 % of GDP, 0,25 of a percentage point higher than in the programme, based on a more prudent assessment of...