Greece PM Outlines Deficit Cutting Measures

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Greek Prime Minister George Papandreou announced on Tuesday, tough measures to cut the country's soaring budget deficit. His austerity measures include a freeze on salaries and an increase in tax on fuel. He also hinted a rise in the retirement age.

In a televised address Papandreou said, "We must act swiftly and decisively." He urged various political parties to support the national effort. It is the time to take bold decisions here in Greece, as other European Union members have done, he said.

Today, the European Commission is expected to adopt its Opinion on the Stability Programme of Greece and also the decisions and recommendations to ensure that the budget deficit of the country is corrected. The nation is under immense pressure to bring its budget deficit below 3%, the threshold set by the Maastricht Treaty. The government is now targeting to bring its deficit, estimated at 12.7% of gross domestic product, with the EU's 3% limit by the end of 2012.

European Commission President Jose Manuel Barroso said a successful correction of the huge deficit is not only important for Greece but for the euro area and the EU as a whole. He said the adjustment "looks feasible but subject to risks." According to economists at Capital Economics, while the immediate pressure on the public finances may not be as intense as it seems, Greece still faces an enormous task in meeting its short-term financing requirements. A less than favorable judgement in European Commission's assessment of Greece's Stability Plan would intensify the pressure on the nation to announce much more decisive measures to improve its fiscal position.

Following the downgrade action taken by Fitch Ratings on December 8, the Standard & Poor's lowered Greece's long-term sovereign credit rating to 'BBB+' from 'A-' on December 17. On December 22, Moody's cut the government bond ratings to A2 from A1, reflecting the government's very limited short-term liquidity risks on the one hand, and its medium- to long-term solvency risks on the other.

Greek Prime Minister George Papandreou announced on Tuesday, tough measures to cut the country's soaring budget deficit. (Market News Provided by RTTNews)