Greece attacks S&P over downgrade

December 17
Greece on Thursday accused Standard & Poor’s of failing to “assess correctly” new moves by Athens to tackle its swollen budget deficit, following a downgrade by the ratings agency of Greece’s long-term sovereign debt.

S&P on Wednesday reduced Greece’s rating from A- to BBB+, saying the new measures announced on Monday were “unlikely on their own to lead to a sustainable reduction in the public debt”.

George Papaconstantinou, finance minister, said: “We don’t think this [rating downgrade] reflects the efforts the new government is making to stabilise public finances which had derailed” – a reference to a collapse in revenue collection and excessive spending under the previous government. “It didn’t take into consideration and didn’t assess correctly what is happening at this point,” he added.

Greek debt markets fell in reaction to the downgrade, which followed a similar move by Fitch last week. Spreads on Greek 10-year bonds over their German equivalents widened from 250 to 267 basis points. Share prices on the Athens stock exchange fell by 1.2 per cent on Thursday.

S&P warned that another ratings cut may follow if the government “is unable to gain sufficient political support to implement a credible medium-term fiscal consolidation programme”.

The measures announced on Monday to cut the budget deficit from 12.7 per cent to 8.7 per cent of gross domestic product next year were not detailed enough to convince analysts – in spite of a pledge by George Papandreou, prime minister, that Greece would do “whatever it takes to reduce the deficit”.

“The downgrade … intensifies the pressure for more decisive action to improve the public finances in a supplementary budget next year,” said Jonathan Loynes, European economist at Capital Economics.

A strike and march to parliament on Thursday by private sector workers marked the first large-scale protest against the Socialist government’s tightening of economic policy. It also highlighted the potential for unrest as cuts in public spending are expected to have knock-on effects on the rest of the economy because of the large size of Greece’s public sector.

Though recession has been shallower in Greece than in western Europe it is set to last longer with the economy projected to contract by 0.3 per cent next year on top of 1.3 per cent this year.

Mr Papaconstantinou, on a European roadshow aimed at restoring credibility with investors, told Reuters that Greece could raise €2.5bn ($3.6bn, £2.2bn) in privatisation revenues next year if it “moved fast”.

The possibility of selling state equity holdings in banks and utilities was dismissed last month by the Socialists saying they were opposed to privatising state companies in order to raise cash.

During the protests on Thursday, several thousand private sector workers shouting “No truce with employers” marched to parliament. Police blocked off part of the capital’s business district centre for more than three hours as lines of protesters carrying flags and banners made their way down the main boulevards.

The 24-hour strike was organised by PAME, a communist-led trade union that has vowed to rally lower-paid and unemployed workers against the austerity package.

“The Socialists came to power two months ago promising to help us through the recession but they’re launching an economic programme that will cause even more pain,” said Anthimos, a welder from central Greece.

Earlier, striking journalists and technicians holding banners and black flags staged a separate protest outside the parliament building.

The 24-hour walk-out shut down news broadcasts on national television channels.

The strike came in support of short-term contract workers at state media channels who are likely to lose jobs in next year’s spending cuts.

“Next January is 14 days away and we still don’t know whether we’ll stay on or not,” said Sofia, a journalist. “The government hasn’t yet implemented any measures.”

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