Greece rules out debt restructuring
Greek Finance Minister George Papaconstantinou on Thursday ruled out a restructuring of Greece's huge national debt, warning that such a move would be "catastrophic."
The restructuring scenario has nearly shut Greece out of private equity markets and has weighed on finances of other countries along the rim of the 16-nation eurozone.
"It would be catastrophic for the Greek citizens, for the Greek economy, for the Greek banking sector and it would create contagion effects for the rest of the eurozone," Papaconstantinou asserted during a visit here.
"We have an issue of credibility and confidence that we have to bridge."
Papaconstantinou, who earlier Thursday was in Paris, is trying to convince investors to buy long-term Greek bonds as Athens struggles to rebuild its battered economy, narrow the public deficit and pay off 300 billion euros' worth of debt.
His aides told AFP in Paris: "The climate is much much much better than some months ago."
But despite approving painful austerity measures, the country is not out of the woods and political leaders are being careful not to let markets assume the worst, lest the eurozone face another existential crisis.
The finance minister even forecast that investors now waiting to see if the government "can stay the course" will want to get a jump on others when they realize there are handsome profits to be made in Greek debt.
"There is a moment, that moment is not very far when you will see a rapid move" to a widespread understanding that "buying Greek government bonds is actually a bargain and a good investment," he said.
In response to a question on Greek bank dependency on funds provided by the European Central Bank, he said: "It is true that there is dependence on the ECB. It is also true that this dependence will be there, and the interbank markets will stay closed until confidence returns.
"For confidence to return the deficit has got to go down," he acknowledged in reference to the goverment's public shortfall.
Greece must reduce a public deficit that surpassed 14 percent of gross domestic product (GDP) last year to 8.1 percent in 2010.
Initial measures appear to be bearing fruit however and the IMF forecasts a deficit of 7.9 percent this year, a level nonetheless still far above the European Union ceiling of 3.0 percent.
The government last week the country's public deficit had been reduced by 32.2 percent in the first eight months of the year and asserted that it was on course to narrow the shortfall by nearly 40 percent for all of 2010.
The Greek economy has taken a body blow from government austerity measures meanwhile, and the economy is predicted to remain in recession until 2012.
Papaconstantinou declined to give a detailed forecast for 2012, but did say: "I continue to believe that we're going to end up the year with a growth rate that is slightly better than minus four (percent), but that remains to be seen."
He said a country's debt profile was "very sensitive to how well you do on growth," and added: "Greece has a history of high growth rates.
"We have been growing much faster then the EU average for a number of years."
The financing situation in Greece is mirrored to a certain extent in other countries on the eurozone's periphery.
Although Italy and Spain have been able to raise funds at reasonable prices in recent bond auctions, Ireland and Portugal have seen the cost of borrowing rise sharply with respect to benchmark German bonds.
Papaconstantinou was accompanied by officials from the European Union and International Monetary Fund, two bodies that rescued Athens from default in May with a 110-billion-euro (140-billion-dollar) three-year rescue package.
Greece foresees a return to bond markets for funding with longer-term debt next year.
And Deutsche Bank economist Gilles Moec told AFP that politically unpopular decisions appear to be gaining acceptance among the volatile Greek population.
"The kind of blood, sweat and tears approach seems to be working," Moec said.
© 2010 AFP