They have managed to pick someone their own size

As we know, the Commission is not going to do anything about the fact that France and Germany, the two largest economies in the eurozone, habitually break through the 3 per cent deficit barrier. (Or the fact that one after another, countries are shown to have submitted creative accounts in order to be accepted into it.) This, the smaller countries thought, was a sign that the Commission was going to turn a blind eye to all their various peccadilloes. But they were wrong in thinking that they could get away with what France and Germany can get away with. Up with this the Commission will not put.

Today the European Economic and Monetary Affairs Commissioner Joaquin Almunia announced that they are all set to start procedures against Greece and Hungary for non-fulfilment of deficit conditions. As AFP reported it:

“Greece, which has been in breach of the limit since 1997, is targeting a 4.6 percent deficit this year and 4.1 percent in 2005. Hungary's shortfall is forecast at 4.6 percent this year and 4.1 percent in 2005.”

Greece, as our readers will recall, has been filing rather interesting accounts and has developed a system of national budget presentation that puts Enron into the shade. The country that spends a larger proportion of its GDP on defence than any other European one, had simply forgotten to put armaments procurement on the annual budget for a number of years.

Creative accounting together with playing host to the most expensive Olympic Games in history means that Greece will not be able to get within the required 3 per cent deficit limit for some time. As far as anyone can recall, the Commission proceedings, if continued to their bitter end (a somewhat unlikely scenario) will result in an enormous fine imposed on the offending country. If paid (an even more unlikely procedure) it will push the Greek deficit into the stratosphere.

As far as Hungary is concerned the decision is bizarre, since the Commission had started with threats of proceedings against five other newcomers as well: Cyprus, the Czech Republic, Malta, Poland and Slovakia. It has now been decided that these countries, though still carrying a deficit of well above 3 per cent, have actually “moved to correct their breaches of the EU Stability and Growth Pact's limit on public deficits”. These moves have not been specified by Señor Almunia. Nor is it exactly clear why Hungary is deemed not to have “moved” in the right direction. Presumably, they, too will be fined, if the Commission completes the process.

Meanwhile, Portugal, having been told that it cannot put through a planned property deal that was going to salvage its budgetary position, has announced that it will implement “emergency measures” to deal with its own “deep crisis”, that is a deficit, somewhat higher that that famous 3 per cent of GDP.

According to the Financial Times:

“Pedro Santana Lopes, the outgoing prime minister, said on Tuesday he would announce special measures this week aimed at raising the €750m ($1bn, £516m)needed by December 31 to prevent Portugal from breaching the pact's budget deficit rules.”

Pedro Santana Lopes has been hampered in his attempts to raise €1bn in extraordinary revenue through the sale or long-term leasing of up to 200 state properties, in that the President decided to dissolve the government and call an election for February. A caretaker government cannot put such a large and controversial procedure in place. Instead, a leasing arrangement was agreed on, but this cannot be counted towards the reduction of the deficit.

At the moment it is unclear what Portugal will do to achieve the nirvana of 3 per cent or under, but one supposition is that the pensions of a state-owned bank will be transferred to a state body. One wonders how a private company or conglomerate would fare if it tried a similar manoeuvre.