GREECE,S 2006 BUDGET APPROVED; TARGETS DEFICIT OF

UNCLAS ATHENS 003246 SIPDIS E.O. 12958: N/A TAGS: ECON EFIN GR SUBJECT: GREECE,S 2006 BUDGET APPROVED; TARGETS DEFICIT OF 2.8 PERCENT OF GDP REF: A. ATHENS 2625 ¶B. ATHENS 2801 ¶1. Summary. The Greek Parliament passed the 2006 budget on December 22, 166 to 132, along strict party lines. Opposition party criticism and European Commission concerns forced the Greek government to skip plans to securitize government debt (ref B) to increase revenues. Nevertheless, the GoG plan still sticks to the original target of reducing the deficit to 2.8 percent of GDP in 2006 from 4.3 percent this year. The Greek budget will now have to get Brussels, approval at the next ECOFIN Ministerial in January when the European Commission is expected to assess Greek government efforts to reduce debt and deficit for compliance with Greece,s Stability pact obligations. In the event of a negative finding (which happened last year),the GoG will have to find additional measures to reduce its debt and deficit, including the possibility of unpopular tax increases. End Summary. ¶2. (U) After four days of intense debate, the Greek Parliament approved the 2006 budget late on December 22, by a vote of 166 to 132 (along strict party lines). The main goal of the budget remains to bring down the deficit from its current 4.3 percent of GDP to 2.8 percent, the maximum allowed under the Maastricht criteria. The budget provides for a 4.8 percent increase in expenditures (down from a 5.3 percent expenditure increase in 2005) and a 7.8 percent increase in revenues. The general government debt is projected to drop to 105.2 percent of GDP at the end of 2006 from an estimated 107.4 percent at the end of 2005 and 109.3 percent in 2004. ¶3. (U) Opposition criticism has focused on the revenue side of the new budget. The projected 7.8 percent increase in revenues represents 3.6 billion euros over revenues collected in 2005. Half of this amount, 1.8 billion euros, was originally budgeted to come from the securitization of debts owed to the state. The Ministry of Economy backed away from this plan in the face of opposition uproar and strong signals from the EC that it would not approve the procedure. The budget target of a 7.8 percent increase in revenues remains unchanged. Minister of Economy Alogoskoufis claims that increased revenues from an extensive privatization program and decreased tax evasion would make up for the shortfall. ¶4. (U) The opposition parties characterized the budget as &unreliable8 and &fraudulent.8 Some deputies highlighted that actual revenue numbers in 2004 and 2005 had nothing to do with forecasts and that the same would pertain in 2006 as well. The main opposition spokesman pointed out that Parliament,s vote on the budget had little relevance compared with the EU,s review at the January ECOFIN (Note: Greece is under excessive deficit surveillance for failing to meet its Stability Pact obligations). However, the news that Greece would continue to receive strong structural adjustment fund support through 2013 (20.1 billion euros or about 24 billion dollars from 2007-2013) helped Alogoskoufis support his GDP growth forecasts, blunting criticism that the government was being too optimistic in its budget projections. ¶6. Comment. There were no great surprises in the debate for the 2006 budget. The ruling party,s comfortable majority in Parliament made passing the budget a foregone conclusion. However, the real judgment on whether the budget is acceptable (or realistic) will be made in Brussels in January at the ECOFIN ministerial. End Comment. COUNTRYMAN