- The Washington Times - Thursday, December 17, 2009

ATHENS

Ratings agency Standard and Poor’s downgraded Greece’s credit rating Wednesday, voicing doubts that recent measures announced by the center-left government would tame the country’s ballooning public debt.

Last week another agency, Fitch, cut its own rating on Greece’s national debt.

The Greek government said it was taking the new setback “into serious consideration,” but defended its plans for righting the economy.

Greece has been facing its worst debt crisis in decades amid the global recession. It faces political pressure from the European Union to straighten out its finances and obey deficit limits intended to support the shared euro currency.

Standard and Poor’s said in a statement it was cutting Greece’s rating from A- to BBB+ with a negative outlook.

“The downgrade reflects our opinion that the measures the Greek authorities have recently announced to reduce the high fiscal deficit are unlikely, on their own, to lead to a sustainable reduction in the public debt burden,” the statement said.

“Moreover, we believe that the government’s efforts to reform the public finances face domestic obstacles that would likely require sustained efforts over a number of years to overcome.”

Responding to the downgrade, a Finance Ministry statement insisted that the cost-cutting measures Prime Minister George Papandreou outlined this week “guarantee tangible results.”

“We have our own strategy and will adhere to it,” the statement said. “[It] cannot be rated on a day-to-day basis. It will be evaluated at the right moment. The measures we are taking are tough.”

Greek officials have repeatedly rejected speculation that a debt spiral might force the country to default on its payments and have pledged to do anything necessary to save the economy, which entered recession in 2009 after years of robust growth.

But the government has shied away from salary and pension cuts in the country’s bloated public sector, and is moving slowly on crucial pension reforms.

On Monday, Mr. Papandreou announced a raft of measures intended to reduce the staggering $437 billion public debt by 2012 at the latest, and gradually bring the budget deficit to below the EU’s euro-zone requirement of 3 percent of GDP by the end of 2013.

He said much of the effort would also focus on fighting rampant tax evasion, corruption and public sector waste.

Mr. Papandreou pledged to cut defense spending in 2011 and 2012, slash bonuses across the public sector, reduce social security and government operating expenditures by 10 percent each, and impose salary caps for public utility directors.

But the government, elected on Oct. 4, appeared struggling to convince international markets and investors that its measures would be sufficient.

“In our view, the increasing debt-service burden narrows the scope for debt stabilization, particularly against the background of what we expect will be a significantly weaker near-term economic growth environment,” the Standard and Poor’s statement said.

Lower ratings mean that the government will likely have to pay higher interest rates to borrow, making it even harder to cut the deficit.

An economist at London-based Capital Economics said the new downgrade was “hardly a ringing endorsement” of the measures Mr. Papandreou announced.

“There are clear doubts over whether some of the measures - particularly those relating to efficiency savings and reducing tax avoidance - will have the impact the government claims,” Jonathan Loynes, chief European economist at Capital Economics, said in a statement.

Standard and Poor’s said it was unclear whether Mr. Papandreou’s Socialists could gain sufficient political support to enact a credible budget-cutting plan in coming years.

Labor unrest could weaken the Greek government’s resolve to cut spending. Greek journalists, hospital doctors and port workers are planning to strike Thursday.

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