By Natalie Weeks and Paul Tugwell Dec. 24 (Bloomberg) — Prime Minister George Papandreou won passage of a 2010 budget to cut 8 billion euros ($11 billion) from the deficit after three credit rating companies lowered the country’s creditworthiness this month. The budget passed by a vote of 160 to 139 in the Athens- based parliament. The socialist government won the Oct. 4 elections with a 10-seat majority in legislature. The budget plan didn’t include some additional deficit-reduction measures announced by Papandreou on Dec. 14. Greek bonds slumped and stocks tumbled this month as concern that the government wasn’t doing enough to fix the country’s deteriorating finances led Standard & Poor’s, Moody’s Investors Service and Fitch Ratings to cut the country’s creditworthiness. Papandreou has pledged “radical” action to narrow the budget gap and restore Greece’s credibility, pledges that have provoked threats of strikes and civil unrest. “With the 2010 budget we are taking a big step forward,” Finance Minister George Papaconstantinou told the country’s 300- member parliament. “To put order to the chaos of public finances, to support the economy and citizens in need.” The budget plan aims to cut public spending and increase revenue. Measures include a tax on large properties to generate 1 billion euros, benefit cuts for civil servants and a crackdown on tax evasion. The budget will reduce a deficit of 12.7 percent of economic output this year to 9.1 percent in 2010. Earlier this month Papaconstantinou said additional measures beyond those in the budget would reduce the shortfall to 8.7 percent in 2010. Rating Cuts Greece’s rating was lowered to A2 from A1 by Moody’s on Dec. 22 to leave it five steps above non-investment grade and two notches higher than levels assigned to by S&P and Fitch. Greece has the lowest ratings among the 16 euro nations, and should Moody’s cut further to the levels of Fitch and S&P, Greece risks having its bonds excluded as collateral from European Central Bank borrowing operations when the ECB reverts to pre-crisis rules at the end of next year. The difference in yield between Greece’s benchmark 10-year bond and that of the German bund, Europe’s benchmark government security, widened 75 basis points in the past four weeks to 242 points. The benchmark ASE has fallen more than 9 percent in the last month with Piraeus Bank SA and National Bank of Greece SA, leading the decline, falling 20 percent and 19 percent respectively. EU Review The European Commission has put Greece into its excessive deficit procedure, and the country could face fines or other punishment if it can’t prove it can bring the shortfall back within the EU’s 3 percent of GDP limit in the coming year. ECB President Jean-Claude Trichet and Vice President Lucas Papademos have both said this month that Greece needs to take “courageous” action to close its budget gap, which is more than four times the EU ceiling. Greece will present a more detailed deficit-reduction plan to the commission in January that will serve as a guideline to “negotiate the shape and timeframe for our exit from supervision.” The government has pledged to achieve much of the deficit reduction by boosting revenue, primarily through one-off taxes and raising 1.2 billion euros through the crack down on tax evasion. An audit of government spending will begin next year to narrow in on areas where further cuts may be made. To contact the reporters on this story: Natalie Weeks in Athens nweeks2@bloomberg.net . Paul Tugwell in Athens Ptugwell1@bloomberg.net .
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Papandreou’s 2010 Budget to Cut Deficit Approved After Three Rating Cuts
