Greece got the green light last week for its 1.5 billion ($1.7 billion) securitization deal (see ASR, 11/28/05), but reiterated that it will not use proceeds from the transaction to bolster its 2005 and 2006 budgets.

The deal could have reduced the 2005 deficit to 3.6% from 4.4% of GDP, closing the gap caused by a tax revenue shortfall. Greece initially anticipated using the securitization proceeds in its 2005 budget, but reversed the decision following the European Commission's disapproval. The nation's minister of finance said Greece would seek permanent structural measures to address its deficit and believes it can reduce the deficit to below 3% of GDP by the end of this year without using securitization.

"It is at least encouraging that Greece [does] not intend to use such securitizations to plug budgetary gaps and remain[s] committed to a program of structural reform, although whether or not the ambitious timetable as set out in the Stability and Growth Program is met is another matter," said Trevor Cullinan at Standard & Poor's sovereign ratings. Like the European Commission, S&P disapproves of the use of such one-off measures to improve a country's budget.

Securitizations benefit a country's fiscal flexibility in the short term given the immediate benefits to its cash flow. (S&P defines fiscal flexibility as the ability of a public-sector issuer to adjust to economic trends and to react quickly in the wake of economic shocks, modifying policies in a way that will safeguard smooth debt-service payments.) But these benefits are outweighed by an inevitable loss of control over the assets and the resulting loss of future receivables from those assets, which in the long run could limit fiscal flexibility.

The European Commission plans to issue a general decision on the treatment of unpaid tax securitizations.

"I have ... confirmed that Eurostat [The European Commision's Statistical Office] has informed the Greek statistics office, at the latter's request, of the rules that permit the classification of securitization operations involving tax credits as government revenue," said Amelia Torres, a spokeswoman for the European Commission on economic and monetary affairs. "Eurostat also [has] an ad hoc task force [that] is in the process of reviewing these rules, and that the clarification is expected to be ready by the first of April, the date by which member states must notify Eurostat each year of the debt and deficit figures for the previous year as well as of any revisions for the previous three years."

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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