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Time for a reality check

Revision of Greece's public finance accounts has underlined the need for a big effort to reduce budget deficits. However, the government seems unwilling to tackle crucial areas such as social security reform. Dimitris Kontogiannis reports

Still room for consolidation

Bond spreads under pressure

FACED WITH A huge revision of its public finance accounts that has earned it praise for transparency and scorn for massaging its statistics in the past, Greece now has no option but to pursue a more restrictive fiscal policy to avoid putting its credit rating, recently cut by Standard & Poor's, under renewed downward pressure.

"The reduction of the budget deficit is paramount in 2005 but even more important for the Greek government is to ensure it is sustainable," says Giovanni Zanni, an economist at CSFB in London.

Burdened by spending overruns related to Greece's hosting of the Olympic Games and revenue slippage that is not uncommon in an election year, the budget deficit is expected to have widened to 5.3% of GDP or more in 2004 compared with a 1.2% forecast. The public debt-to-GDP ratio is expected to reach 112%. The bigger than expected deficit also reflects the results of the revision of public finance accounts made under the auspices of Eurostat.

The new conservative administration, which was elected early in March, made good on its pre-election promise to proceed with an audit of public finances.

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