Greece tries to turn the credit corner
With Greece continuing to run budget deficits that are unpalatable to credit rating agencies and breach EU guidelines, the government must look beyond tax increases to deal with the problem. Dimitris Kontogiannis reports.
|Constantine Karamanlis: The high
debt burden remains a pressing
concern for the Greek prime
FOLLOWING THE FINAL revision of Greece's fiscal accounts, the result of an audit undertaken a short time after the conservative government came to power early in March 2004, the country's 2004 budget deficit skyrocketed to 6.1% of GDP and its public debt to 110.5% of GDP, surpassing even the most pessimistic projections.
Under these circumstances the country will have to convince credit agencies and markets that its public finances have entered into a new, sustainable, virtuous cycle if it is to win a credit upgrade.
Standard & Poor's and Fitch Ratings responded to the country's deteriorating public finances by cutting the long-term sovereign credit rating to A from A+ in the last quarter of 2004 while underlining the lack of a strategy to achieve a sustained decline in the deficit and public debt ratio. Greece is rated A1 by Moody's.
Feeling the heat from EU authorities and the markets, the Greek government, led by prime minister Constantine Karamanlis, raised the value-added tax rate by one percentage point this spring and increased excise taxes on tobacco and alcoholic beverages to bring in more revenues and render its updated stability and growth programme (SGP) for 2004–07 more credible.