Greece hit with new downgrade

Fitch downgraded its rating on Greece to A- from A yesterday after the government doubled its expected budget deficit for 2009 to more than 12 percent of gross domestic product. The ratings agency said its decision reflects news the deficit is likely to be 12.5 percent of GDP, «far higher than Fitch’s previous expectation of 6 percent and compared to Greece’s official projection of 3.7 percent in January.» The higher deficit forecast means general government debt levels are now seen reaching around 115 percent of GDP by the end of 2009, it added. «These ongoing deficiencies materially undermine the credibility of medium-term fiscal consolidation plans.» it added. Earlier this week, the government also revised higher its budget shortfall for 2008 to 7.7 percent of GDP, from 3.7 percent previously. Responding to the news, the Finance Ministry blamed the downgrade on the previous conservative government, saying it «was a consequence of hiding data on the economy from the people, international partners and markets.» Economists said the move was not surprising due to ongoing talk from the government about the country’s budgetary problems, pointing out that a further downgrade may be on the cards. «What is alarming about this downgrade is that having marked Greece down, Fitch have left the sovereign on negative outlook rather than on stable,» Marc Ostwald, bond analyst at Monument Securities told Reuters. «That means they are saying more downgrade risks are possible in the future.» Eurostat data show country tops EU’s list of offenders Greece’s budget deficit was the widest among the 27 countries in the European Union in 2008 at 7.7 percent of gross domestic product, data showed yesterday, but the figures could get worse as the data are still being reviewed by officials in Brussels. Eurostat, the European Commission’s statistics service, said Greece had the largest deficit last year, rising from 3.7 percent of output in 2007, followed by Ireland and Romania, which showed shortfalls of 7.2 percent and 5.5 percent respectively. The average EU deficit rose to 2.3 percent in 2008, from 0.8 percent in 2007, as governments increased spending to help economies get through the crisis. With regard to Greece, Eurostat said it «has expressed reservations about the data reported, due to significant uncertainties over the figures.» Greece’s budget data credibility took a beating this week after Finance Minister Giorgos Papaconstantinou more than doubled the expected budget deficit for 2009 to 12.5 percent of GDP from 6 percent previously. Commenting on the latest data revision, European Union Monetary Affairs Commissioner Joaquin Almunia said in Brussels earlier this week he is «seriously concerned» about the Greek budget data and «the way they are calculated.» Eurostat data also showed that Greek government debt, the second highest in the EU after Italy, rose to 99.2 percent of GDP in 2008, from 95.6 percent in 2007.