By George Georgiopoulos
ATHENS, Jan 8 (Reuters) - Greece's new finance minister Yannis Papathanassiou, who was sworn in on Thursday, has little room for manoeuvre as the global downturn complicates his task of keeping the economy growing while curbing debt and deficits.
Hit by the global crisis and tight credit conditions, Greece's 250 billion euro economy is slowing down after years of 4 percent growth, with worsening fiscal health putting Athens at risk of the stigma of renewed EU supervision.
With the budget deficit likely to have breached the European Union's 3.0 percent of GDP threshold last year, as was the case in 2007, Papathanassiou will have a tough job balancing rising demands for economic relief with the need for fiscal discipline.
"With unemployment set to rise and government receipts likely to fall, the government will either need the nerve to cut spending or borrow more. We've already seen the problems faced in the government bond market with yield spreads widening over 2 percent," said Chris Pryce, Fitch Rating Director for Greece.
Greece, rated A1 by Moody's and A by Fitch and Standard & Poor's, is planning to borrow about 42 billion euros ($56.9 billion) this year, about 16 percent of its projected GDP. Servicing its debt will cost about 4.5 percent of GDP.
"It's not so much the cost of government borrowing, although it will cost Greece more than others. It's the question begining to be raised across Europe, whether investors will lend to governments and particularly weaker governments," Pryce said.
He said Greece's options were restricted because it had the weakest fiscal position among the euro zone's 16 members, a one-vote majority government and "the worst pension problem in Europe".
NO MAGIC WAND
Papathanassiou, 55, an electrical engineer by training and until now deputy finance minister, replaces George Alogoskoufis, who was sacked for a series of policy mistakes despite getting Greece out of the EU's so-called excessive deficit procedure.
Papathanassiou is seen as a ministry hand with a good track record and a better feel for the small-sized business sector, having previously headed the Athens Chamber of Commerce.
"I know I am taking over at a difficult time with public debt an added load," he said during the change of guard ceremony at the finance ministry on Thursday.
"2009 will be a tough year, there are no magic recipes. We must not further burden those on low incomes and small businesses. It is our duty to tidy up the public sector, continue the clampdown on tax evasion and speed up structural reforms," he said.
Analysts say the global economic downturn will not leave Greece unscathed, with the government's 2.7 percent growth projection for this year seen as optimistic against a backdrop of recession in Europe and the United States.
The 2009 budget targets will be a challenge in view of past fiscal performance and an exceptionally adverse external environment.
Meeting a 15 percent budget revenue growth target will need stronger efforts against tax evasion. Government spending targets must be thoroughly respected given downside risks to the 2.7 percent GDP growth forecast as domestic demand softens.
"We do not expect any significant change of fiscal policy given the bad state of Greek finances and very limited room for manoeuvre," said an economist at a large Greek bank who did not want to be named. (Editing by Stephen Nisbet)