GREECE MUST announce bold initiatives in the next few days to rescue its collapsing bond market and avert the possibility of defaulting on a rising public debt, leading economists and bankers warned yesterday.
Prime minister George Papandreou will today outline structural reforms aimed at cutting the budget deficit from 12.7 per cent to 3 per cent of gross domestic product (GDP) – the limit allowed by the euro zone’s stability and growth pact – over the next four years.
But observers were pessimistic last night that Mr Papandreou would reverse his current policy and call for an immediate freeze on public sector wages and higher excise taxes.
Such measures are seen as critical to lowering spreads on Greek bonds and restoring confidence in the economy.
“Greece has to show it understands the magnitude of the crisis,” said Nikos Karamouzis, deputy chief executive of EFG Eurobank, the largest private Greek lender.
“This means implementing immediately very radical and painful measures. This is what international financial markets and our European partners are demanding,” he said.
Ireland last week announced unprecedented cuts in public sector wages and unemployment benefits, while Spain promised a 4 per cent reduction of spending in its 2010 budget amid pressure on bond markets.
“Our window of opportunity is shrinking very fast,” said Yannis Stournaras, an Athens University economics professor and former chief adviser at the finance ministry. “Other countries in trouble have already taken measures. If we don’t quickly follow suit, the adjustment will be imposed by markets and it will be violent,” Mr Stournaras said.
Greece urgently needs to restore its international credibility following a downgrade last week by Fitch to BBB plus, and a warning by Standard Poor’s of a possible downgrade.
Moody’s will visit Athens this week, raising fears that Greece will suffer another downgrade as it gears up to borrow another €50 billion in 2009 on top of a record €60 billion n this year.
The public debt is set to rise next year from 113 per cent to 124 per cent of GDP, the highest in the euro zone.
Europe's economic and monetary affairs commissioner Joaquín Almunia yesterday told Spanish newspaper El Paísthat Greece could not rely on the euro zone to come to its rescue.
– (Copyright The Financial Times Limited 2009)
