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Can Greece keep up the good work?

Greece’s economy grew faster than expected in 2005. But its government faces a major challenge in 2006: to maintain its strong growth rate while complying with the EU directive to cut its budget deficit by the end of the year. By Dimitris Kontogiannis.

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Greece seems to be on the brink of achieving something of an economic miracle in the eurozone, by both beating its growth targets and reducing its budget deficit. The news in 2005 was positive, with the Greek economy estimated to have grown by about 3.7%, beating market consensus forecasts that expected GDP growth of between 2.8% and 3.3%. And the government achieved this in style, since it also managed to reduce its budget deficit to about 4.3% of GDP from 6.6% in 2004.

This means there’ll be more of the same in 2006.

“The government will stick to the policy of smooth economic adjustment that combines fiscal consolidation with strong GDP growth rates,” says Plutarch Sakellaris, chairman of the council of economic advisors at the Greek finance ministry. “We feel confident that we can bring the budget deficit below 3% of GDP and achieve economic growth of 3.8% in 2006.”

In its updated programme for 2005–08, the general government budget deficit is predicted to fall to 2.6% of GDP in 2006, underpinned by a GDP growth rate of 3.8%. But the European Commission and some economists doubt whether Greece’s excessive deficit can be eliminated before 2008.

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