Greek prime minister to announce measures to shake up debt-riddled government finances

Greek PM to announce economic crisis plan

ATHENS, Greece — Greece’s new government readied plans Monday to pull the country out of its worst debt crisis in decades and boost confidence in its shaky finance with measures expected to include a crackdown on rampant tax evasion.

Greeks concerned about how spending cuts would affect them were awaiting a speech by Prime Minister George Papandreou outlining the government’s efforts. European Union officials have warned that Greece must deal with its problems itself and not expect a bailout.

“We need to take tough and painful decisions,” Papandreou’s office quoted him as saying in a Cabinet meeting ahead of his speech Monday, adding that this was “an opportunity for us to cure the chronic problems that plague Greece’s political and public life.”

A delegation from Moody’s credit rating agency was in Athens to review the economic situation, which has seen the country’s projected deficit swell to more than 12 percent of economic output this year. That is four times the limit imposed European Union as a condition of using the euro currency, and twice the previous official projection.

The country’s debt has soared to a staggering €300 billion ($442 billion). According to the draft 2010 budget, the public debt, estimated at 113.4 percent of GDP in 2009, is forecast to reach 120.8 percent of total economic output next year.

Moody’s put Greece’s government credit rating under review for possible downgrade in late October, and a verdict is expected by early next year at the latest. Last week, Fitch Ratings downgraded Greece from A- to BBB+ — the lowest rating of any of the 16 countries using the euro.

Lower ratings mean that the government will likely have to pay higher interest rates to borrow, making it even harder to cut the deficit.

Greece’s financial woes have also weighed on the euro currency, whose long-term value depends on member countries keeping their finances in order.

Greece is not the only country in the eurozone facing potential problems with its debt. Ireland, Spain and Portugal all face scrutiny in bond markets, but Athens has come under the most pressure from other EU countries to take drastic measures to bring its public finances into order.

The latest bout of jitters were stoked last month when Dubai World, a government-owned investment company with $59 billion worth of debt, said it was looking to postpone forthcoming debt payments until May, feeding market doubts about the bonds of all government borrowers on shaky footing thanks to the global recession.

Athens has insisted there is no similarity with Dubai.

“There is no question of default,” Finance Minister George Papaconstantinou said in an interview. “We obviously have very serious problems. We are not the only country to have this kind of problem. What distinguishes us is a loss of confidence; a loss of confidence in our statistics, in our numbers; a loss of confidence that Greek governments are capable of doing what must be done.”

Papaconstantinou, who met with a delegation from Moody’s and outlined the government’s plans, said Greece was trying to regain that confidence by reducing the deficit by 4 percentage points in a year, cutting spending, tackling tax evasion and stimulating growth. The government has said it will freeze hiring in the bloated public sector next year, and hire just one person for every five government workers who retire or quit in 2011 — although it will not cut salaries.

Papandreou, whose Socialist party came to power in October, has acknowledged Greece suffers from endemic corruption, particularly in tax evasion. He has pledged major changes, which may mean tax hikes and heavy spending cuts, and has called on main opposition leaders to hold rare joint talks on the issue. The goal is to win support for potentially unpopular measures and stave off public demonstrations which often turn violent.

An opinion poll published over the weekend showed nearly half of Greeks would accept sacrifices to help the country emerge from its economic woes. The poll by Alco published by the Proto Thema newspaper Sunday said 49.8 percent would agree to make sacrifices, compared to 43.2 percent who would not. It did not give a margin of error.

“The public deficit is clearly very worrying,” Papaconstantinou said.

“Of course we have an economic crisis in all the European Union countries. What distinguishes Greece is the gap between the public deficit published by the previous government, and the true numbers that we have at the moment. The deficit is double what we expected, and it requires a much stronger effort” to bring the economy under control, he said, with the government aiming to reduce the deficit to below 3 percent in the next three to four years.

The prime minister is to outline his plans in a speech to business and union leaders as part of a public debate on reforming Greece’s economy. The Athens stock market closed up 2.6 percent.

But some analysts note Greece faces a tough balancing act.

“The government now is on a thin line between two opposing objectives: the objective of reducing the public expenditure and increasing revenues, and of not pushing the economy further down in a recession,” said Gikas Hardouvelis, a finance and economics professor at Piraeus University.

“If they overdo it, if they overplay the card of minimizing deficit, it may turn out to be counterproductive. Because if they push the economy down, then of course they’re not going to make it. So I expect to see a balance between the two” in Papandreou’s speech Monday, he said.

Not all Greeks are convinced their new prime minister can pull it off.

“I think Papandreou has good intentions but he’s not the one pulling the strings,” said 35-year-old computer engineer Nikos Antoniou. “The worst is yet to come and working class people are going to suffer the most.”

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Associated Press writer Karolina Tagaris contributed to this report.