Greece looks serious about resolving its financial crisis on its own. Yesterday the country announced fiscal measures to reign in the mountain of rising debt its so crucially needs to control.

The latest plan aims to raise €4.8 billion ($6.5 billion) through a pension freeze, public sector salary cuts, and higher excise and value-added taxes.

In European countries, transfer payments and public sector wages make up a large portion of the annual budget. In the case of Greece, transfer payments accounted for 45% of non-interest expenditure in general government, and public sector wages accounted for 28% in 2009.

The pension freeze and a 30% cut in holiday bonuses for government workers have been met with anger, sparking a fresh round of public protests.

Barclays Capital economists said that a reduction in transfer payments could be achieved by increasing the retirement age (to reduce pension payments), reducing unemployment benefits and reducing healthcare entitlements.

“To what extent corresponding legislation can be enacted, and how soon, remains an open question,” Barclays economists said. “Suffice it to say that voters tend to grow fond of their benefits and would historically appear rather reluctant to give them up. Certainly, any such reform attempts come with the risk of strike action on a broad front, with a corresponding negative impact on production and hence government revenues.”

The European Commission has endorsed the latest package. It said that the measures would put Greece on track to reach its target four-point reduction in country’s deficit, which currently sits at 12.7% of gross domestic product.

The new austerity measures are pending approval from parliament this week, which would make the package the third such plan implemented by the Socialists since their election in October.

The proposed measures, according to Moody's Investors Service, are consistent with the current ‘A2’ rating, with a negative outlook, for Greece's government bonds.

Moody’s said that the new measures also demonstrate the government's resolve to regain control of public finances and said that the measures increase the probability of debt stabilization provided that they, and the previously announced policy measures, are fully implemented.

"The onus is on the government to demonstrate that it does not merely announce ambitious plans, but is also able to deliver on these commitments," said ," says Sarah Carlson, vice president and senior analyst in Moody's sovereign risk group and lead analyst for Greece.

"However, Moody's does not expect Greek public finances to be turned around in a fortnight."
Carlson added that the Greek government needs to be given time to allow it to follow through on its plan.

Maintaining the government bond rating at ‘A2’ will be contingent, Moody's said, upon the government executing its fiscal austerity program and delivering the quantum of deficit reduction that has been promised.

Signs that deficit reductions will fall short of what has been promised would likely lead to downgrades — as suggested by the negative outlook — in proportion with the shortfall.

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