EU sees need for further measures

European Union inspectors called on the Greek government yesterday to press ahead with further measures to reduce its budget deficit by almost 5 billion euros. EU inspectors visiting Athens have told authorities they see a deeper-than-expected recession and higher borrowing costs hindering Greece in its bid to meet its deficit-cutting targets. «Negotiations [on measures to cut Greece’s deficit] continue because they see a big slippage from targets,» said a senior Greek Finance Ministry official. The inspectors anticipate Greece will only be able to cut its deficit-to-GDP ratio by 1.5-2.0 percentage points compared with a 4 percentage point target this year, he said. This would mean additional measures aimed at savings of about 4.8 billion euros. The official said any further measures would be announced after a visit by European Economic Affairs Commissioner Olli Rehn to Athens next week. Fitch Ratings told Reuters yesterday it was keeping Greece’s BBB+ rating unchanged and maintaining a negative outlook, with an eye on any extra measures by mid-March and the success of an upcoming bond issue. Athens is preparing to issue a 10-year bond, its second debt sortie this year, and officials have indicated it aims to do so in February or early March. Moody’s also said yesterday any changes in its Greek rating would depend on whether Athens was smoothly enacting its fiscal reform plans as promised. Standard and Poor’s said on Wednesday it may downgrade Greece’s BBB+ rating by one or two notches within a month, citing downside risks to growth that could hinder the country’s deficit-cutting plan. Talk of a possible ratings downgrade for Greece prompted a fresh slide in Greek bonds, pushing the premium demanded by investors to hold the nation’s 10-year securities instead of German Bunds to a two-week high. The Greek 10-year bond increased 13 basis points to 6.64 percent. Germany’s 10-year Bund yield fell 3 basis points to 3.1 percent, leaving the spread with Greek securities of a similar maturity 16 basis points wider at 356 basis points.

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