Greece remains vulnerable to a deterioration in international economic conditions. According to Moody’s, this is due to the country’s high national debt, high social expenditure and a slowdown in tax revenues that will reduce policy flexibility, which together constitute a credit risk.
The international rating agency notes that rising compulsory spending and the slowdown in economic growth have left several eurozone governments with little budget flexibility compared to the period before the global financial crisis. In states with large debts, the combination of high social spending with a slowdown in direct tax revenues will reduce their options when dealing with difficult financial situations in the future.
Moody’s warns that Greece, Spain, Ireland and Cyprus have seen their obligatory expenditure rise by a greater degree than most other countries, while only Malta, Germany and Luxembourg have shown an improvement on that front compared to 2008.