EU tells Greece to reduce budget deficit
Greece’s EU partners are giving Athens less than two years to bring its annual budget deficit under 3% of gross domestic product or face hefty fines for flouting the rules that govern the stability of the euro.
Today, the EU will formally set a late 2006 deadline for Greece to comply with the good governance rules of the common currency of 12 EU nations.
Late yesterday, EU finance ministers meeting in Brussels put Greece on notice to curb public spending, officials said. Unless Greece cuts its annual deficit to under 3% of GDP – down from 5.5% ion 2004 – it may face hefty fines under the eurozone’s stability rules.
The decision to put Greece on notice for violating the eurozone’s rules by running deficits of more than 3% of gross domestic product is the most drastic action the EU has taken to date.
France and Germany – the eurozone’s two biggest economies – narrowly avoided that prospect by pledging to get their deficits under the 3% mark by 2005.
Greece, however, is different. Last year, the EU discovered it had reported flawed economic figures in recent years and hidden cost overruns from the 2004 Olympics.
Luxembourg Prime Minister Jean-Claude Juncker, chairman of the 12-nation eurozone group, remained hopeful a deal could be reached by June to ease some provisions in the euro stability pact that underpins the currency.
Germany wants to limit the EU’s ability to fine governments, and add exemptions to the 3% limit for nations carrying out significant economic reforms, making major infrastructure investments or going through an economic downturn.
“We must all pursue policies that generate more growth in Europe,” German finance minister Hans Eichel said yesterday.
Diplomatic sources said EU officials had drafted a working paper that stressed cooperation – instead of coercion – to get euro-zone members back into line should be a main feature of the stability pact in the future.
The paper calls for “close and constructive cooperation in the process of economic and fiscal surveillance” and foresees exemptions for nations with low overall debt, or whose economies shrink.
At the moment, an economy has to shrink by at least 2% to get concessions from the EU head office.
