George Alogoskoufis Minister of Economy and Finance

Regional development at the top of the agenda for EU’s highest climber
With its own economy growing faster than the eurozone average, Greece is assuming an increasingly important role in the emerging economies of the New Europe

When Costas Karamanlis announced his new cabinet shortly after his election victory in September, few would have been surprised to find that George Alogoskoufis was kept in position as Minister of Economy and Finance.

Mr Alogoskoufis has been the architect of Greece’s economic reforms. On his watch, Greece has achieved a rate of growth well ahead of its co-states in the Eurozone, while at the same time putting its public finances in order. Greece, he says, has demonstrated that fiscal consolidation is compatible with sustained growth if it is accompanied by supply-side reforms that help redirect resources towards private investment.

The government is as determined as before to carry out its reform agenda. “We know very well what we have to do in order to create a competitive and innovative economy,” says Mr Alogoskoufis. He shares the Prime Minister’s certainty that Greeks see the need for change. “On September 16, the Greek people acknowledged the success of our policies. They gave us the green light to move ahead.”

The economy is forecast to maintain its growth rate of 4 per cent next year, with private investment and exports the main drivers. According to Mr Alogoskoufis, international uncertainties over the high oil prices and developments in capital markets are having no direct effect and he expects growth to remain strong, due to community funds from EU Community Support Framework programmes, private investments totalling 8 billion euros and joint ventures between the public and private sectors worth 3 billion euros.

The Economy and Finance minister pledges to be “relentless” in his pursuit of a balanced budget by 2010. Tightened spending and improved revenues from taxes have helped bring down the general government deficit to 2.7 per cent of GDP – despite relief expenditure following this year’s devastating forest fires, towards which the EU is contributing 9 million euros. Next year’s deficit target is 1.6 per cent of GDP.

“Healthy public finances do not only lead to a fair and business-friendly tax system, but they also allow the state to build infrastructure necessary for businesses to develop and expand their horizons,” says Mr Alogoskoufis.

Tax reform is a priority, with the aims of cutting income tax to 25 per cent in 2009, from 30-40 per cent in 2006, and abolishing all property taxes. The government also aims to tackle Greece’s high level of tax evasion. Despite a continuous reduction of the tax burden on companies and households, tax revenues are forecast to rise by 12.9 per cent, reaching 22.3 per cent of GDP, from 21.1 per cent of GDP in 2007.

Mr Alogoskoufis will also be looking to make savings by reducing the high cost of public administration and increasing efficiency in state-owned enterprises. The privatisation programme will continue, with state holdings in telecoms group OTE, Attica Bank, Postal Savings Bank, Olympic Airlines and Greece’s main international airport all slated.

Controversy is guaranteed as the government tackles the highly sensitive issue of pensions reform. With the prospective increase in fiscal costs from an ageing population among the highest in Europe, the country’s financial stability could buckle under the weight of its present system. Analysts say that if nothing is done, spending on pensions will account for more than 20 per cent of GDP. The government plans a fundamental overhaul.

A strong Greek economy is important not only to Greeks but also to the region. Greece plays a key role in the development of Southeast Europe through trade and investment. Mr Karamanlis noted recently that nearly 4,000 Greek businesses and more than 2,300 branches of Greek banks “utilise the opportunities given by the broader region of Southeast Europe and of the eastern Mediterranean.”