Economic
Challenges Following Olympics
Washington,
D.C. - In the aftermath of Greece’s estimated $8 billion to $12 billion
outlay to host the most expensive Olympics in history, Prime Minister
Costas Karamanlis announced in a September 11 address on the state of the
Greek economy that the country was facing “an acute fiscal problem”
characterized by a deficit of 5.3 percent and an overall debt of 112
percent of GDP in 2004, which weighs in as the highest in the European
Union.
Greece’s
deficit exceeds the 3 percent of GDP mandated by the eurozone’s
Stability and Growth Pact for the 12 European Union nations that are
covered by it. Its debt is nearly twice as high as the Pact’s ceiling of
60 percent, amounting to as much as$75,000 for each Greek household.
The
European Commission has given Athens a November 5 deadline to announce
corrective measures to lower the deficit to below 3 percent by next year
and has urged budget cuts of at least 1 percent of GDP, spread evenly over
2004 and 2005.
Economy
and Finance Minister Yiorgos Alogoskoufis said the Greek government had
appealed to the European Union to view the excessive deficit within the
definition of the “exceptional circumstances” provision in the
Stability and Growth Pact, which would allow the country to surpass the
deficit limit without penalties. He cited the fact that the expenses for
the Olympics, which Greek officials estimate have accounted for about
one-fourth of the deficit, constituted a temporary expenditure, including
a $1.5 billion security bill and overruns on delayed construction
projects. Alogoskoufis pledged that Greece would aim at bringing its
deficit down to 2.8 percent of GDP in 2005 in order to comply with EU
regulations.
When
Athens was awarded the 2004 Olympics in 1997, the cost of hosting the
games was estimated at $2 billion. In March 2004, when the previous
government of the Panhellenic Socialist Movement (PASOK) was voted out of
office and Karamanlis became prime minister, the estimate stood at $5
billion.
Karamanlis
accused the PASOK government of deliberately under-reporting spending
related to the Olympics, defense, and social welfare, having predicted a
1.2 percent deficit and a debt under 100 percent for 2004.
Karamanlis
said a $490 million cut in defense spending now and a larger reduction for
the period from 2006 to 2010 would be one of the ways the government would
deal with the fiscal problem. Three days after the prime minister’s
address, Greek government spokesman Theodoros Roussopoulos said that, in
January 2003, Karamanlis, as leader of the opposition New Democracy Party,
and Recep Tayyip Erdogan, the current Turkish prime minister, who was at
that time leader of the ruling Justice and Development Party, made a
verbal agreement to reduce defense spending in their respective countries
when they both came to power. Roussopoulos stated that Athens and Ankara
also discussed reducing defense spending at the NATO summit in Istanbul in
June 2004. Both countries have made significant reductions in their
military expenditures.
In
his address, Karamanlis also proposed raising $1.8 billion through the
privatization of state assets, including Olympic Airways, and the floating
of the Postal Savings Bank on the stock market; cooperating with private
companies in major infrastructure projects and the use of Olympic venues;
and passing legislation that enhances competitiveness, resulting in new
jobs, increased investment, subsidies for businesses that hire the
unemployed, and the development of provinces outside the major population
centers in order to tackle unemployment, standing at 9.5 percent at the
end of 2003, which he called “the biggest economic and social problem of
the country.”
The
prime minister said other measures would include slowing the pace of
government spending to a point below the growth rate, providing greater
support to small- and medium-sized enterprises, and implementing tax
reform, including the gradual reduction of personal income tax between
2005 and 2007 and a 5 to 10 percent decrease in company taxes.
The
IMF warned that the Greek economy might slow appreciably in 2005 due to
the absence of Olympics-related activity, particularly construction. It
called for new reform of Greece’s social insurance system, stating that
the system might not be able to fulfill its obligations toward the
insured; recommended relaxation of the country’s strict labor market
regulations; and urged a reduction in hiring for the public sector and
cutbacks in government spending. The organization said Greece’s social
insurance reform in 2002 had not tackled the fundamental, long-term
imbalances in the system and predicted that the significant increase in
costs for healthcare and pensions by 2010 would exceed that of any other
EU member.
The
National Bank of Greece said growth in 2005 would likely slow from an
annual average of 4 percent over the last six years to 3 to 3.5 percent.
Investment growth in 2005, however, was expected to remain about the same
as 2004, with business investments financed by $24 billion in EU
structural funds through 2007 offsetting the absence of Olympics-related
projects, the Bank said. Wage increases were expected to be 3.5 percent in
2005, in contrast to increases of 7 to 9 percent in 2004.
Standard
and Poor’s (S and P), on September 13, downgraded its debt rating for
Greece from stable to negative due to “a deepening deterioration of
public finances and lack of progress in lowering the public debt ratio as
a share of national output.” This is the lowest rating of the 12
eurozone countries. However, S and P retained its “A+” and “A-1”
ratings on the country’s long-term and short-term sovereign credit
ratings.
September
17, 2004
Turkey’s
EU Accession Decoupled from Aegean, Cyprus Solutions
Washington,
D.C. - Prime Minister Costas Karamanlis said that Greece would continue to
support Turkey’s EU accession process even if Greek-Turkish differences
over the delimitation of the Aegean continental shelf were not resolved by
the end of 2004. Failure to reach an agreement on this issue should not
lead Greece to “shut out Turkey’s European prospects,” the prime
minister stated.
In
the presidency conclusions issued at the end of the December 1999 EU
summit in Helsinki, where Turkey was named a candidate for European Union
membership, the EU stated that one of the terms of Turkey’s candidacy
would be “to make every effort to resolve any outstanding border
disputes and other related issues.” The conclusions also said that the
European Union “would review the situation relating to any outstanding
disputes, in particular concerning the repercussions on the accession
process and in order to promote their settlement through the International
Court of Justice, at the latest by the end of 2004.”
Since
the Helsinki summit, representatives of the Greek and Turkish foreign
ministries have met more than two dozen times to discuss Greek-Turkish
disputes in the Aegean in an attempt to resolve them by the end of 2004.
They are expected to continue these discussions well into 2005.
Karamanlis
also stated that Greece would not consider resolution of the Cyprus issue
to be “a precondition for Turkey’s accession to the European Union,”
noting that all Greeks “aim at a solution to the problem of Cyprus as
soon as possible.” He said he believed “that a European Turkey is in
everybody’s interest,” and he chose “as a matter of principle to
support Turkey’s European perspective.”
The
prime minister said, however, that his government would have to review the
European Commission’s report on Turkey’s readiness for membership, to
be released on October 6, before deciding whether to vote at the December
EU summit in the Netherlands in favor of setting a date for Ankara’s
accession talks. He stated that the Turkish government had “made a most
serious effort” in its process of reform in preparation for EU
membership, “but there are also other things to be done.”
“We
look forward to the upgrading of bilateral cooperation [with Turkey] and
the full restoration of Greek-Turkish relations,” Karamanlis said.
