February 3, 2010 / 5:47 PM / in 9 years

Timeline: Greece's economic crisis

(Reuters) - The European Commission endorsed Greece’s austerity plan on Wednesday but said Athens must take further steps to cut public sector wages to tackle the most severe debt crisis in the euro zone.

Following is a timeline of events since Prime Minister George Papandreou’s socialist PASOK party won snap elections last October.

October 2009 - The new government discloses the 2009 budget deficit will be 12.7 percent, more than double the previously announced figure.

November 2009 - The new government pledges in its 2010 draft budget to save Greece from bankruptcy by cutting the deficit while keeping electoral promises to help the poor amid the economic crisis.

— Final budget draft shows Greece aims to cut its budget deficit to 9.1 percent of GDP in 2010 to assure EU partners and markets it is serious about restoring fiscal health.

— It also sees public debt rising to 121 percent of GDP in 2010 from 113.4 percent in 2009. EU forecasts on Greece for 2010 are worse, with the deficit seen at 12.2 percent of GDP and national debt rising to 124.9 percent of GDP, the highest ratio in the EU.

December 2009 — S&P on December 7 puts the country’s A- sovereign rating on negative watch.

— On Dec 8, Fitch Ratings, which had cut Greece to A- when the government revealed the higher deficit, cuts Greek debt to BBB+ with a negative outlook, the first time in 10 years a ratings agency has put Greece below the A investment grade.

— The next day, Papandreou says he is determined to win back the country’s lost credibility.

— On December 14, Papandreou outlines policies to cut the country’s ballooning budget deficit and try to regain the trust of investors and EU partners. Papandreou announces a 10 percent cut in social security spending in 2010. Says he will abolish bonuses at state banks and slap a 90 percent tax on private bankers’ bonuses. Vows a serious fight against corruption and tax evasion, calling them the country’s biggest problems.

— He announces a drastic overhaul of the pension system in six months and a new tax system that will make the wealthier carry more of the burden. Greece says it now plans to cut its budget deficit to 8.7 percent of GDP this year.

— Standard & Poor’s cut Greece’s rating by one notch on December 16, to BBB-plus from A-minus, saying austerity steps announced by Prime Minister Papandreou were unlikely to produce a “sustainable” reduction in the public debt burden.

— Yield spreads between Greek and benchmark German 10-year bunds widened to an average 272 basis points on December 19, the widest in more than 8 months, as skeptical markets continue to sell Greek government bonds and stocks.

— Moody’s cuts Greek debt to A2 from A1 on December 22 over soaring deficits, the third rating agency to downgrade Greece, but still two notches above that of Fitch and S&P. The spread between 10-year Greek and German Bunds tightens after the downgrade.

January 2010 - EU officials arrive in Athens on January 7 to ask Greece for a more specifics of its three-year plan to shore up its finances.

— Greece unveils the stability program on January 14 saying it will aim to cut its budget gap to 2.8 percent of GDP in 2012 from 12.7 percent. Unions protesting against the austerity plan, announce strikes for February.

February 2010 - Papandreou says on February 2, the government will extend a public sector wage freeze to those making below 2,000 euros a month for 2010, excluding seniority pay hikes.

— The next day EU Commission says it backs Greece’s plan to reduce its budget deficit below three percent of GDP by 2012 and urges Greece to cut its overall wage bill and take extra fiscal measures.

— Greece must refinance 54 billion euros in debt in 2010, with a crunch in Q2 as 20 billion euros becomes due. A 5-year bond issue in January was five times oversubscribed but the government had to pay a hefty premium.

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