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Now Greece heads for junk status as crisis intensifies
EU inspectors doubt that Athens will be able to meet targets to cut its deficit
By Sean O'Grady, Economics Editor
Friday, 26 February 2010
The crisis of confidence in Greece's ability to tame its budget deficit deepened yesterday as Greek government sources confirmed that European Union inspectors now in Athens expect the country to miss its targets for deficit reduction.
Surrounded by more mass protests against the Papandreou government's austerity programme, EU officials believe that Greece's contracting economy and rising debt costs will make it difficult for Greece to meet its obligations, according to Greek sources. It must roll over €25bn (£22bn) of debt in April and May.
George Papandreou was, in effect, placed out "on report" by fellow EU leaders at their last summit in Brussels, and he will be required to report monthly on his country's progress. Such tight supervision is being demanded as the price for maintaining Greek membership of the euro and averting a potentially fatal crisis in the eurozone.
"Negotiations are continuing because they see a big slippage in targets," commented the Greek official.
Greece has committed to chop its deficit from almost 13 per cent of GDP to 9 per cent next year, but EU officials seem privately sceptical that the improvement will exceed 1.5 to 2 percentage points, leaving the ambition of undercutting the Stability and Growth Pact's 3 per cent limit by 2012 doubtful.
The Greek government has announced a freeze on civil servant wages and a 10 per cent cut in salaries, though EU finance ministers are said to be pressing for a rise in VAT on luxury goods and still more cuts. Inevitably, though, these will have a depressing effect on the Greek economy and make its adjustment even more painful.
EU inspectors doubt that Athens will be able to meet targets to cut its deficit
By Sean O'Grady, Economics Editor
Friday, 26 February 2010
The crisis of confidence in Greece's ability to tame its budget deficit deepened yesterday as Greek government sources confirmed that European Union inspectors now in Athens expect the country to miss its targets for deficit reduction.
Surrounded by more mass protests against the Papandreou government's austerity programme, EU officials believe that Greece's contracting economy and rising debt costs will make it difficult for Greece to meet its obligations, according to Greek sources. It must roll over €25bn (£22bn) of debt in April and May.
George Papandreou was, in effect, placed out "on report" by fellow EU leaders at their last summit in Brussels, and he will be required to report monthly on his country's progress. Such tight supervision is being demanded as the price for maintaining Greek membership of the euro and averting a potentially fatal crisis in the eurozone.
"Negotiations are continuing because they see a big slippage in targets," commented the Greek official.
Greece has committed to chop its deficit from almost 13 per cent of GDP to 9 per cent next year, but EU officials seem privately sceptical that the improvement will exceed 1.5 to 2 percentage points, leaving the ambition of undercutting the Stability and Growth Pact's 3 per cent limit by 2012 doubtful.
The Greek government has announced a freeze on civil servant wages and a 10 per cent cut in salaries, though EU finance ministers are said to be pressing for a rise in VAT on luxury goods and still more cuts. Inevitably, though, these will have a depressing effect on the Greek economy and make its adjustment even more painful.
