Greece moves step nearer to joining EMU

Date: 25/11/1999

By Tim Jones

EU FINANCE ministers will strike Greece from their budgetary black list next week in recognition of the government's success in driving its deficit well below the magic threshold of 3% of national income.

The decision, due to be taken at a meeting next Monday (29 November), will clear the way for Athens to launch a formal bid next spring to join the euro zone in January 2001.

Greece's budget deficit has declined from a high of 13.8% of gross domestic product in 1993 to an expected 2.2% this year, and is forecast to hit 1.6% in 2000.

"Their deficit is down and looks like staying down, and their projections are realistic even now on inflation, which has always been a big Greek problem," said one national treasury official. "It should be a formality taking them off the list."

Inflation is expected to slow to 2.8% this year, within a percentage point of the euro-zone rate, and the government has promised further measures to contain price rises.

The Commission decided to recommend removing Greece from the blacklist earlier this month in light of "positive developments" in the country's public finances. Officials are most impressed by the government's sustained primary surplus - the gap between spending and revenues once interest repayments on accumulated public debt are stripped out - which has risen steadily over the past three years to 6.9% of GDP.

However, Economics Commissioner Pedro Solbes warned that Greece must reduce inflation further before its place in the euro zone could be assured.

The major proviso in the EU decision will relate to Greece's still-huge mountain of public debt - 105.3% of GDP this year. But accelerated privatisations will ensure the government's debt-to-GDP ratio has declined by more than three percentage points over the past three years.

EU finance ministers are set to strike Greece from their budgetary black list in recognition of the government's success in driving its deficit well below the magic threshold of 3% of national income. The decision, due to be taken at a meeting on 29.11.99, will clear the way for Athens to launch a formal bid next spring to join the euro zone in January 2001.