LONDON (AP) — The Greek government’s proposals to slash its massive budget deficit won praise from one of the world’s biggest credit rating agencies, but questioned whether Prime Minister George Papandreou can push the plan through.
Moody’s Investor Services said Tuesday that the government’s plan to restore credibility to its public finances, reform its tax system and combat tax evasion is “relatively well designed,” at least for the short-term.
However, Moody’s said that it is maintaining its negative outlook on the country’s debt given the lack of certainty surrounding Papandreou’s ability to implement the program.
“The heavy legislative program for the first quarter of 2010 and Greece’s poor track record in implementing fiscal reform mean that success cannot be taken for granted,” said Sarah Carlson, a senior analyst at Moody’s.
Last month, Moody’s joined its peers Standard & Poor’s and Fitch in downgrading its rating on the country’s debt, setting off a chain of events that has even raised concerns about Greece’s remaining in the euro.
The cost of insuring Greek debt has risen sharply and the euro has fallen on the foreign exchange markets.
Moody’s is the second vote of confidence Greece has won over the last day or so. On Monday, the eurozone’s top official Jean-Claude Juncker said Greece could get itself out of its fiscal hole.
However, Juncker, Luxembourg’s premier, said the Greek people would “need to be brave” and that he believed the Greek government would do whatever is necessary to get a grip on its borrowing within a reasonable period of time.
The new Socialist government has delivered a set of proposals to the European Union outlining how it will bring its budget deficit down to within EU limits by 2012.
The Greek proposals are to bring the deficit down to below 3 percent of the country’s gross domestic product by 2012 from the projected 12.7 percent in 2009. The plan also provides for a gradual reduction from 2012 in Greece’s national debt — expected to reach 120.4 percent of GDP this year.
Moody’s said Papandreou’s Stability and Growth Program addresses the three biggest threats to Greece’s creditworthiness — chronically weak fiscal institutions, the slow erosion in competitiveness and an aging population.
“Although two key pieces of legislation — related to pension and tax reform — are still in consultation, the Greek government has provided enough detail to validate Moody’s current rating assessment, since the SGP is not significantly different from what was anticipated,” said Carlson.
Moody’s currently rates Greece’s debt at A2, which is five notches down from the top-rated triple A. However, it remains well within the bounds of what Moody’s considers to be investment grade debt.
Moody’s also said that determining whether the Greek plan will succeed or fail is particularly challenging given the weak credibility of government deficit and debt statistics.
Greece’s fiscal statistics have been undermined by years of mismanagement and misreporting, as was listed in last week’s report from the EU’s statistics office Eurostat.
As a result, Moody’s said it will need to rely on Eurostat’s validation of Greek data to determine the likely success or failure of this aspect of reform.
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AP Business Writer Aoife White contributed from Brussels.