Which hit 12.7 percent of gross domestic product in 2009 and sparked one of the biggest euro zone crises since the single currency was launched. Moody's said Greece's plan addressed the main threats to its creditworthiness although the outlook on the country's credit rating remains negative due to uncertainty about the government's ability to enact spending cuts.
In Brussels, at a meeting of European Union finance ministers, officials also raised the pressure on Greece to act quickly - failure to do so could lead the country to become the first ever to face EU penalties over profligate budget policies. "The situation with Greek statistics has been basically fraudulent," Swedish Finance Minister Anders Borg said. "We need to assess whether the measures are real.
We need statistics we could trust and real measures on how to consolidate the budget," said Finnish Finance Minister Jyrki Katainen. Greek Finance Minister George Papaconstantinou said his government's deficit-reduction plan presented last week had drawn a positive initial response from other ministers. "There is a very clear commitment by the new government to tackle what is, we know, an unsustainable fiscal situation," he told a news conference in Brussels. "Our programme is serious, dedicated, ambitious and fully realistic."
The government's plan aims to reduce the budget deficit to 2.8 percent of GDP in 2012 through cuts in welfare spending, tax reforms and savings on public sector wages. That contrasts with 12.7 percent for 2009 reported by the new socialist government, double the level spoken of by the previous administration.
Greece's ballooning debt level, estimated at more than 120 percent of GDP, has prompted market speculation that Greece may be unable to service its obligations. Greece is struggling with its first recession in 16 years and the new Socialist government is facing growing protests against austerity - the country's main private sector union said on Tuesday it will hold a strike at the end of February.
Civil servants are planning a strike on February 10. GDP is estimated to have contracted 1.2 percent last year and unemployment jumped to 9.8 percent in October from 7.4 percent a year earlier. Marko Mrsnik, an associate director at Standard & Poor's, told Reuters in an interview that Greece's credit rating could be affirmed within three months if the deficit-cutting plan is successful. But he warned of risks that social pressures could push the government to water down the plan.
"Political and social pressures are likely," Mrsnik said. "If they build up and impede the government from moving on and water down the budgetary effort, leading to failure to comply with the consolidation strategy, the ratings could be lowered." In a reflection of the concerns, investors demanded a large premium to buy 1.2 billion euros ($1.7 billion) at an auction of three-month Greek government treasury bills on Tuesday, with the yield jumping to 1.67 percent.
At the country's last auction of similar paper, in October, the yield was 0.35 percent. "There is a double reading on the auction results," said Panagiotis Dimitropoulos, treasurer at Millennium Bank-Greece. "If you compare the yield to the previous auction in October or 6-month paper, it's not a good result. But compared to what the market was expecting, which was 1.8 percent, it came out better," he said.