Identifier
Created
Classification
Origin
05ATHENS3246
2005-12-28 06:07:00
UNCLASSIFIED
Embassy Athens
Cable title:  

GREECE,S 2006 BUDGET APPROVED; TARGETS DEFICIT OF

Tags:  ECON EFIN GR 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
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

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