Moody’s expects belt-tightening measures to last

Greece continues to face significant challenges despite its strong economic growth over the past decade, but there are signs of positive progress under the current government, says Moody’s Investors Service in its annual report on Greece. These long-term issues are reflected in the government’s A1 rating, the lowest among the 12 eurozone governments. The outlook for the rating is stable. «Greece has implemented only very limited long-lasting budget reforms over the past decade, a factor that has contributed to the fiscal deficit that is well above the 3 percent limit stipulated by the Maastricht Treaty, despite the strong growth of the country’s economy,» says Sara Bertin-Levecq, a VP-Senior Analyst with Moody’s and author of this report. The government has been under mounting pressure from the European Commission to rein in its deficit, which was driven up by expenditures on the 2004 Olympic Games and reached 6.6 percent in 2004 and 4.3 percent in 2005. However, with the end of Olympics-related expenditures and on the back of an increase in tax revenues, Moody’s expects Greece’s deficit to come down to under 4 percent for 2006. «An audit of public finances following the 2004 elections highlighted the structural weaknesses in the country’s budget and showed that the deficit has been significantly above its 3 percent threshold since 1997,» said Bertin-Levecq. «Despite lower interest rates, this has resulted in debt-to-GDP ratios remaining at around 110 percent of GDP over the same period – one of the highest ratios among the 12 eurozone countries and considerably above the average of 70 percent.» Under the current government, which took office in the spring of 2004, the rating agency expects restrictive fiscal policies to remain in place for the next few years. In addition, following the 2004 audit, Moody’s anticipates a culture of greater fiscal transparency and better accounting practices, which should contribute to a stabilization of debt levels.

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