Tags: EU | Europe | Financial | Crisis

Greece: Return to Bond Markets in 2012 Unlikely

Sunday, 22 May 2011 03:36 PM EDT

Greece's prime minister admitted for the first that his country might not be able to tap the markets for its borrowing needs next year as the head of the eurogroup urged the debt-ridden country to set up an independent privatization body overseen by the European Union to bring down its ballooning debt level.

George Papandreou said in an interview to daily Ethnos published Sunday that "it does not appear at present that Greece will be able to cover its borrowing requirements in 2012 normally, from the markets."

As part of its euro110 billion bailout deal with the European Union and the International Monetary Fund, Greece was expected to raise euro27 billion to help pay its bills in 2012.

Papandreou also acknowledged that Greece "would most likely" default on its debt if the pending fifth installment of its euro110 billion loan package were not granted as scheduled.

A decision on the euro12 billion installment is due after a June progress review by the EU, the IMF and the ECB.

Market interest rates for Greek governments bonds are currently prohibitively high because creditors fear the country might completely default or restructure its debt.

Papandreou also told the newspaper that Greece could only return to the markets once it runs a primary budget surplus. He did not give a date when he expects Greece to have such a budget surplus before interest payments.

The Greek leader's blunt comments gave the strongest indication yet that Greece will need further assistance from its creditors, probably at least the euro27 billion it was meant to raise on its own next year.

Moreover, more European leaders floated the idea of a debt restructuring to give the country new breathing space.

German Finance Minister Wolfgang Schaeuble told German weekly Bild am Sonntag that if private and public creditors share the burden and if "there is sufficient certainty" that Greece will eventually overcome the crisis, then "we could maybe think about extending maturities of bonds that Greece would have to pay back next year."

"The experts have to tell us what's possible and what isn't possible because it would lead to uncertainty on the markets. This won't be easy," he told the weekly.

Luxembourg's prime minister, the head of the eurogroup, also said that once Greece consolidates its budget, a "soft restructuring" could be started.

"Then we can think about extending the maturities of public and private bonds and lower the interest rates," Jean-Claude Juncker told German news weekly Der Spiegel's edition to be published Monday.

Juncker chairs the meetings of the 17 eurozone finance ministers.

However, the European Central Bank under its President Jean-Claude Trichet remains staunchly opposed to any debt restructuring for fear of contagion.

Schaeuble therefore stressed that any decision on restructuring would need the approval of the IMF and the ECB.

Amid the uncertainty created by the rumors about an upcoming restructuring, Greek borrowing costs last week spiked to record highs, with interest rates on 10-year bonds hovering around 17 percent — or roughly a steep 14 percent above the benchmark German government bonds.

Papandreou also blamed the EU's management for the crisis.

"The truth is that Greece is fighting within the European Union that has not decided how to solve its problems. Europe today is looking inward, scared and often appears unable to make big decisions," Papandreou told Ethnos.

He called for an integrated economic policy and for the European Central Bank to issue joint European sovereign bonds.

Such so-called eurobonds would significantly lower the interest rate for Greece and others, but Germany and those with an AAA rating would see their borrowing cost rising and oppose the idea.

European leaders instead pressure Athens to implement harsh austerity measures and deliver on its promises to privatize significant assets.

Juncker therefore urged Greece to set up an independent privatization body overseen by the European Union.

The EU in future will monitor Greece's privatization program "as if we were conducting it ourselves," he told Der Spiegel. The agency should be independent of the government and feature international experts, he said.

Juncker suggested that agency could be modeled after Germany's so-called Treuhand agency that managed the sale of companies and assets in the country's east after the fall of communism.

Athens has singled out assets worth some euro50 billion ($70 billion) for privatization, but has struggled to implement the plan.

The Greek economy is stuck in recession and no fast exit seems within reach.

The chief executive of German insurer Allianz SE, Michael Diekmann, said that more loans or a debt restructuring alone won't be sufficient for Greece to boost its economy.

"Money alone can't solve the Greek problem. We need a plan to industrialize Greece, a sort of Marshall plan. Production and labor would have to be transferred to Greece from all over Europe," Diekmann, whose company is Europe's biggest insurer and one of the world's biggest bondholders, told German daily Bild.

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Greece's prime minister admitted for the first that his country might not be able to tap the markets for its borrowing needs next year as the head of the eurogroup urged the debt-ridden country to set up an independent privatization body overseen by the European Union to...
Sunday, 22 May 2011 03:36 PM
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