Prime Minister George Papandreou, who won 4 October elections vowing to tax the rich and help the poor, assured EU allies and investors that the euro zone's weakest member would cope with a financial crisis hitting its markets but fell short of spelling out the unpopular measures needed.
"The criminal policies of the previous government have led us to an unprecedented dead end," Papandreou told a cabinet meeting, setting the scene for a difficult road ahead. "We are determined to do whatever it takes to control the huge deficit."
With 160 deputies in the 300-seat parliament, he has a solid majority to back hard policies but analysts say his government is walking a tightrope. Going back on election promises would fuel long-lingering public anger, strikes and crippling street protests that would undermine its mandate.
Revised figures showed the defeated conservatives had under-reported huge deficits. Greece, in fact, had been in recession for the whole year, the first time since 1993, with its key tourism and shipping sectors hit by the global crisis.
The bad fiscal news led to downgrades of Greece's debt and concerns it may not be able to raise money to pay for pensions and public salaries. EU partners told the socialists they had no choice but to take tough measures, like Ireland.
"Markets are not giving the new Papandreou government the time it asked for," political commentator Antonis Karakousis wrote in the prestigious To Vima daily. "The change must take place now, while there is still time."
Papandreou had promised to bring about deep changes in the public sector in his first 100 days in office, cutting waste and pumping those funds into his 'green growth' plan, but the extent of the crisis took the socialists by surprise.
Tough measures needed
On Tuesday, Fitch ratings downgraded Greek debt to a 'B' rating for the first time in 10 years, hitting Greek stock and bond markets, and leading to fears that it may have to resort to the IMF, a scenario denied by both the government and the EU.
It cited concerns about deficits and a debt burden that would come to over 120% of GDP in 2010, surpassing Italy's for the first time in years. Agencies and EU partners remained unconvinced Greece could meet its 2010 budget deficit target of 9.1% of GDP without extra measures.
Although the government said it would submit to the EU an additional budget if needed next year, it did not spell out extra fiscal moves, fearing a political backlash.
"There is a general belief that public spending is inelastic but I believe there is room for cuts if one works hard to find them," said Gikas Hardouvelis, professor of finance at Piraeus University. "For example, if one looks at overtime pay in the public sector."
EU ministers have warned Greece should expect no bailout from Brussels and EU pressure could help sell a restive Greek public, which took to the streets several times this month over political and labour issues, the austerity measures needed.
"What is the government waiting for? Why does it not take the brave decisions," said the conservative Kathimerini daily in its main editorial. "In a few more weeks, it will be forced to both take stricter measures and assume the responsibility for a crisis not of its own making."
(EurActiv with Reuters.)
