Tags: Greece | Finance Chief | Bailout Isn't Needed

Greece Finance Chief Says Bailout Isn't Needed

Wednesday, 06 Jan 2010 03:28 PM

Greece on Wednesday rejected any prospect of needing a bailout as European Union and European Central Bank officials started a visit to discuss the debt-laden country's plan to cut its deficit to the EU's 3 percent of GDP cap.

In a sign of increasing pressure on Greece to get its finances in order, European Central Bank Executive Board member Juergen Stark warned earlier on Wednesday that the bloc would not save Greece if its debt problem worsened, helping to push the euro down for a short time.

"The Greek government has neither asked for nor is expecting any ECB help," Finance Minister George Papaconstantinou told Reuters in response to Stark's comments.

"It has announced a very ambitious and determined fiscal consolidation program aimed at reducing the deficit by 4 percentage points ... in 2010 and bringing it below the 3 per cent threshold in 2012, one year earlier than previously planned," he added.

The government's broad outline of how it will get out of its fiscal mess has not impressed markets, making the talks with Brussels on the details of a long-term budgetary plan Greece must submit by end-January a sensitive point for investors.

"The EU officials are here (at the finance ministry), they are looking at the draft of the plan," a senior finance ministry official said.

"They will meet in the coming days officials from the health, labor, defense and economy ministries."

Stark told Italian newspaper Il Sole 24 Ore that EU states would not help out.

"The markets are deluding themselves when they think at a certain point the other member states will put their hands on their wallets to save Greece," Stark said in the newspaper.

Greek bond spreads widened slightly in response to the report. But analysts said Stark's comments did not necessarily mean the EU would refuse to assist Greece if aid became necessary to prevent a debt default.

They said Stark was probably using tough rhetoric in an effort to press the Greek government, and Greek public opinion, into accepting major public spending cuts to bring the country's budget deficit down to levels permitted for euro zone states.

"I'm very confident that, were help to be needed, it would be there because there's so much at stake for the euro area," said Jacques Cailloux, euro zone economist at RBS. "If there was a contagion crisis that threatened the euro zone or the periphery, then the ECB would have the right to intervene."

Papaconstantinou called Stark's comment "not helpful."

"A fact-finding mission of this type is perfectly normal for a country that is submitting a stability and growth programme," he told CNBC in an interview. "(Stark's comments) are frankly unhelpful. We never asked nor are expecting any kind of a bailout.

Greece, which fell into its first recession in 16 years in 2009, is set to become the EU's most indebted country this year, with debt rising to 124.9 percent of GDP according to EU data.

Greek markets were hammered in the fourth quarter of 2009 over concerns about the country's fiscal deterioration after the new socialist government revealed the budget deficit would reach 12.7 percent of GDP in 2009, more than twice previous forecasts.

The key question for investors, rating agencies and Greece's EU partners will be whether Greece's long-term budgetary plan, also known as its stability plan, will contain enough structural cost-cutting measures to be deemed feasible and convincing.

The Greek government has already announced a series of measures including a 10 percent cut in supplemental public sector wages, and a 10 percent reduction in social security expenditures this year.

Investors were not convinced, however, and ratings agencies have warned they may cut Greece's rating further if the government fails to win public support for tougher, long-term fiscal measures.

Some doubted Greece could achieve its revised objective of cutting the deficit under the EU cap by 2012.

"Historical experience suggests that it will be tough to lower the deficit as dramatically as the government hopes," said Ben May, at Capital Economics. "The scale of the adjustment required suggests that the government will struggle to meet its targets without prompting a huge economic contraction."

Prime Minister George Papandreou faces opposition to tough reforms within his own party and among trade unions, while scandal-weary, crisis-stricken Greeks are reluctant to make sacrifices to help the country reduce its deficit and debt.

Last month, in an apparent effort to calm the debt market, senior European officials hinted strongly that the EU would help Greece if that became necessary, though they stopped short of explicitly promising aid.

"What happens in one member state affects all others, especially as we have a common currency, which means we have a common responsibility," German Chancellor Angela Merkel said, which was followed by similar comments from French Finance Minister Christine Lagarde.

© 2017 Thomson/Reuters. All rights reserved.

 
1Like our page
2Share
Headline
Greece on Wednesday rejected any prospect of needing a bailout as European Union and European Central Bank officials started a visit to discuss the debt-laden country's plan to cut its deficit to the EU's 3 percent of GDP cap. In a sign of increasing pressure on Greece to...
Greece,Finance Chief,Bailout Isn't Needed,
800
2010-28-06
Wednesday, 06 Jan 2010 03:28 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved