Standard & Poor’s Ratings Services (S&P) on Wednesday downgraded Greece’s credit rating, voicing doubts that recent measures announced by the center-left government would be able to tame the country’s ballooning public debt.
The downgrade came after another agency, Fitch, last week downgraded its own rating on Greece’s national debt.
Greece has been facing its worst debt crisis in decades amid the global recession. It faces political pressure from the EU to straighten out its finances and obey deficit limits intended to support the shared euro currency.
S&P 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.”
On Monday, Greek Prime Minister George Papandreou announced a raft of measures intended to reduce the staggering 300 billion euro (US$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.
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.
The government, elected on Oct. 4, appears to be 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 S&P 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.
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