Finance Minister George Papaconstantinou said a restructuring of Greece’s debt, causing losses for bondholders, would lock the country out of markets for a decade or more.
“A restructuring, a debt haircut, would be a huge mistake for the country,” Papaconstantinou said in an interview on state-run NET TV today. “It would have a tremendous cost, with no benefit. Greece would be out of markets for 10, 15 years.”
Greece, which received a 110 billion-euro ($163 billion) bailout last year, can rely on emergency loans from the euro area and the International Monetary Fund as well as Treasury- bill sales to meet its funding needs through 2011. Under the aid plan, Greece is supposed to regain market access next year and refinance at least three-quarters of its maturing medium- and long-term debt. Greece’s 10-year bond yield was at 15.5 percent as of 8:44 a.m. in London.
In March, euro-area leaders decided to let the European Financial Stability Facility purchase bonds directly from governments in an aid program. The plan to let the EFSF buy debt from governments depends on Greece sticking to the program to reduce its deficits, Papaconstantinou said.
“We must do what we said we would and what we should be doing anyway,” he said. He reiterated that any future decision by the EU and the IMF to further extend the repayment period of the bailout loans would be welcome.
Greece’s financing needs for 2011 total 58 billion euros and are fully covered by the bailout and bill sales, the Finance Ministry said on March 13. In 2012, borrowing needs total 66 billion euros, with 24 billion euros to come from the aid package, 2 billion euros from state-asset sales and 13 billion euros from bill sales. That leaves 27 billion euros in funding that must be covered by investors or the Luxembourg-based EFSF.
Greece’s deficit reached a euro-area record of 15.4 percent of gross domestic product in 2009. It dropped to 10.5 percent of GDP last year and is targeted to fall to 7.4 percent this year and to within the European Union’s 3 percent limit in 2014.
Greece’s economy, in its third year of a recession, is forecast by the government to shrink 3 percent this year before returning to growth in 2012. The country’s debt is projected to peak at 159 percent of GDP in 2012.
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