Greek finance minister makes whistle-stop in Paris, Frankfurt

16th September 2010, Comments 0 comments

Greek Finance Minister George Papaconstantinou made whistle-stop tours in Paris and Frankfurt Thursday to reassure wary investors that Athens will not default on its sovereign debt.

Such a scenario has made it hard for Greece to raise funds on private equity markets and thrown a shadow over finances along the rim of the 16-nation eurozone.

"Restructuring is not going to happen. There are much broader implications for the eurozone should Greece have to restructure its debt," Papaconstantinou told the Financial Times in an interview published following his first stop, in London.

The Greek minister is trying to convince investors to buy long-term Greek debt, as the country struggles to rebuild its battered economy and finances.

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 market rumours gain strength, lest the eurozone face another existential crisis.

"People fail to see the costs to both Greece and the eurozone of a restructuring: the cost to its citizens, the cost to its access to markets," Papaconstantinou said.

"If Greece restructures, why on earth would people invest in other peripheral economies? It would be a fundamental break to the unity of the eurozone."

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 is accompanied by officials from the European Union and International Monetary Fund as he tries to restore confidence after Athen's narrow rescue from default in May when the EU and IMF put together a 110-billion-euro (140-billion-dollar) three-year rescue package.

A draconian austerity drive of wage and pension cuts applauded by the EU and IMF appears to have borne fruit despite protests and Greece now favours a full return to the 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.

An aide to Papaconstantinou told AFP: "We have already passed a lot of structural reforms which can give some boost to growth.

"If we move that way, in the determination to reduce the deficit and promoting reforms to enhance growth, there will be a sustainable way for the growth."

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 and the IMF now forecasts a deficit of 7.9 percent this year, a level nonetheless still far above the European Union ceiling of 3.0 percent.

The Greek economy has taken a body blow from the government's austerity measures however, and the economy is forecast to remain in recession until 2012.

© 2010 AFP

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