Greeks sceptical with new cost-cutting measures

Greeks reacted with scepticism Tuesday to sweeping cost-cutting measures announced by the government.

ATHENS, December 15, 2009 (AFP) - Greeks reacted with scepticism Tuesday to sweeping cost-cutting measures announced by the government to bring the country's debt-ridden economy within EU norms and reassure investors.

Newly elected Socialist prime minister George Papandreou, in an address eagerly awaited by nervous financial markets, warned that Greece "faces the risk of sinking" under a debt of 300 billion euros (439 billion dollars).

He said the country had "lost every trace of credibility" after its credit ratings were downgraded, a move that sparked fears for the solvency of other heavily indebted eurozone members.

Under pressure from the bond market, Papandreou vowed to impose curbs on public sector hiring and pay and pledged a 10-percent cut in civil servant benefits and a reduction in military spending.

He called for a 90-percent tax on bonuses at banks and an overhaul of the fiscal system in order to drum up more revenue for the state.

The measures are to come into force from early 2010 and will bring the public deficit below 3.0 percent of output as required by the eurozone "before the government's term expires in 2013," he said.

But early reaction both domestically and from foreign analysts was muted.

"The PM's speech was a recap of the government's declarations," noted centre-left Kathimerini daily.

"It is uncertain whether the (measures) will succeed," it said.

Left-wing Eleftherotypia daily said it would be best to wait until "the measures are fleshed out and loopholes for waste are truly closed."

"Greeks are less patriotic when their pocket comes into play," Eleftherotypia said.

Goldman Sachs chief European analyst Erik Nielsen found "several good intentions in the speech, including the outline of further fiscal measures to underpin their promise to cut the deficit to three percent over the next four years."

"But, alas, it was -- predictably -- light on details. Based on early statements, we’ll have to wait some six weeks before we’ll know much on this side, but early reactions were predictably reserved," he said.

The crisis -- described by the Greek finance ministry as the worst in the country's modern history -- has raised the yields on Greek bonds, which means that the Greek state has to pay higher interest on the loans it needs to cover its deficit.

The prime minister has ruled out aid from the International Monetary Fund. The government's plans threaten to ignite fierce union resistance, with a leading trade union firing a strike warning hours before the speech.

On Tuesday, a Communist-affiliated syndicate blocked the entrance to the Greek finance ministry.

The Greek stock exchange was rocked by uncertainty following the downgrade a week ago by Fitch Ratings. The market lost nearly 10 percent of its value in cumulative losses early last week, then briefly rebounding before closing with a fresh 2.41-percent loss on Friday.

The market closed up 2.60 percent on Monday ahead of Papandreou's speech.