Greece’s new austerity measures lend credibility to fiscal adjustment plan

Moody's Investors Service said that the additional fiscal measures announced by the Greek government are consistent with Moody's current A2 rating, with a negative outlook, for Greece's government bonds.
Moody's also published an IssuerComment, entitled "A Ten-Point Analysis of Greece's A2 (Neg) Rating", which reiterates the rating agency's rationale behind Greece's rating and the conditions under which that rating could change.
"These new measures are a clear manifestation of the government's resolve to regain control of public finances," said Sarah Carlson, lead analyst for Greece. In an economic and market environment that has become increasingly challenging, these 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 Carlson.
"However, Moody's does not expect Greek public finances to be turned around in a fortnight," she added, insisting that the Greek government needs to be given time to allow it to follow through on its plan.
As repeatedly stated by the rating agency, Greece's current A2 (Neg) rating balances two factors: on the one hand, Moody's assessment that the government faces limited short-term liquidity risk; on the other, Moody's concern about the long-term erosion in Greece's creditworthiness given its need to deleverage the economy (starting with the public sector) in a context of weak competitiveness and slow regional growth.
Going forward, maintaining the government bond rating at A2 will, according to Moody's, be contingent upon the government executing its fiscal austerity programme 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.