International rating agency Fitch announced that it is lowering Greece’s credit rating from A- to BBB+ and is giving negative prognosis about the development of the Greek economy. For the first time in ten years the rating of the country falls under A, due to the sudden deterioration of public finances in Greece. Experts from the agency are not ruling out a new decrease of the credit rating. The main arguments of Fitch are inability of the Greek Government to control the budget deficit and to maintain positive growth in economic development.
Fitch assessed the reforms by the government as one-sided because they only affect the growth of state budget revenues through tax increases and not the reduction in spending, which according to experts is the country’s big problem. Besides this, they are not convinced that the applied reforms in the tax system by the government will lead to more income. The news of Fitch’s decision tumbled Athens stock exchange with 4%.
On Monday, a double blow for the Greek economy was the announcement of the international financial analysts from Standard & Poor's. The published report showed Greece’s credit rating to be A- and the country's banking sector to be facing the biggest economic risk in comparison to other countries in the EU. S&P announced that they will exercise control over CreditWatchNegative, in which the new government is expected to submit a development program which will introduce stricter measures to restore the economic life of the country. “Greece’s credit rating is on CreditWatchNegative, in order to reflect our opinion of the new policy, which the new government has drafted until now and which according to us will unlikely provide a stable budget deficit and national debt decrease,” said Marko Mrsnik, economic analyzer in Standard & Poor’s Rating Services.
According to experts, if the government does not introduce additional measures for decreasing public expenses, the country’s national debt can reach 125% of the GDP for 2010 – record level for the Eurozone – and it will remain that high or even it will increase more. S&P discusses PASOK’s plan to lower the budget deficit with 3.6% in 2010 or to fall with 9.1% of the GDP, out of the current 12.7%, by the end of 2010. In order to increase national income the government plans to increase real estate and capital gain taxes and in order to limit some expenses, it will freeze salaries of public employees and it will not renew contracts of people working in the public sector.
Mrsnik says: “We believe that the strategy of the new government for fiscal consolidation is more temporary, than long-term. We believe these measures alone are unlikely to change the economic situation in Greece because of high government deficits and heavy national debt that the government succeeded.” In two months S&P will have more information regarding the future policies of Georgios Papandreou’s government and will be able to issue a final credit rating decision, after the introduction of the Development Program in Brussels in January. “If we see that the strategy of the government is aggressive enough, in order to ensure long-term decrease of national debt, the rating might become stable. On the other hand, the category might reach level BBB+, if we decide that the financial politics of the government are unrealistic, in comparison to other countries in the Eurozone,” comment experts from Standard and Poor’s.
Meanwhile on Monday, December 14, a group of experts from Moody’s is arriving in Athens, who will evaluate the development of Greek economy. The experts will have meetings in the Ministry of Finances and in National Bank of Greece. Right now Moody’s evaluation of Greece is A- but it announced its decision to lower it.
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