Greece hopes it won't need to extend a EUR110 billion bailout program
from the International Monetary Fund and the European Union beyond 2012--by
which time it expects to return to the debt market and start showing primary
surpluses in its annual budget, Finance Minister George Papaconstantinou said
Thursday.
"With substantial primary surpluses and a return to growth there won't be
a need to extend the program," Papaconstantinou said in a joint interview
with The Wall Street Journal and Dow Jones Newswires. "We think the
markets will open. Will it be in 2011 or 2012 is still a question."
Greece
hopes
to return to the market during 2011, he said, but when exactly will depend on
the conditions.
Crippled by debts of nearly EUR300 billion, Greece became in May the first
euro-zone member to need a financial bailout, with the EU and the IMF stepping
in with a rescue package that among other things calls for a steep deficit
reduction through unprecedented austerity measures, including wage and pension
cuts as well as tax increases that have drawn fire from public- and
private-sector unions.
On Thursday, Greek public servants walked off the job for 24 hours to protest
belt-tightening measures, paralyzing state services, closing schools and
grounding close to a hundred flights.
Papaconstantinou confirmed that the economy will contract by 4% this year and
by 2.6% to 2.7% in 2011, with hopes at a recovery from 2012 onward.
Greece's mounting fiscal problems earlier this year spooked investors who
started demanding higher interest rates to fund its debt, eventually making it
prohibitive for Greece to access private capital markets. The country is
currently only engaging in monthly auctions of Treasury bills. Longer-term
borrowing will be viable only when spreads on Greek 10-year bonds over German
bunds fall to about 400 basis points or a yield of about 6%. Yields are about
10% currently.
Papaconstantinou acknowledged that Greece will face a major "refinancing
hump" once repayments to the IMF and the EU kick in around 2014 or 2015,
when annual debt-servicing obligations will nearly double from about EUR40
billion to EUR70 billion. Yet, he insisted that restructuring of the Greek debt
would "make no sense."
"Economically and politically a restructuring of the Greek debt would make
no sense and would put a tremendous burden on the Greek banking
system--possibly bringing it down," he said. "Europe-wide, there
would be a tremendous flight to safety. Why would you want to invest in
government bonds in peripheral countries if one of them has restructured its
debts?"
Under the existing program,
Greece
's
public debt is expected to peak at 149%-150% of the gross domestic product by
2013-2014, the minister said. However, based on revised projections following
initial assessments by the EU and the IMF in September, the debt-to-GDP ratio
could peak at around 143%-144%, a ministry official said later.
Based on the draft budget for 2011, announced earlier this week,
Greece
now
projects a budget deficit of 7% of GDP, ahead of a promised 7.6% target
requested by its international lenders. It also expects this year's deficit to
come in at 7.8%, below the 8.1% target. Papaconstantinou said the European
Central Bank was "instrumental" in helping stabilize Greek finances.
In a vote of confidence in
Greece
's
ability to return to the markets, Chinese Premier Wen Jiabao said in a recent
visit to the debt-ridden country that
China
will
continue to buy Greek bonds. He also announced the creation of a $5-billion fund
to help Greek shipping companies buy Chinese ships.
Papaconstantinou said this was a positive sign for
Greece
,
marking a shift in the investor base of Greek sovereign bonds.
"The Chinese see
Greece
as a
strategic investment in
Europe
. They
see the potential that such a move on a long-term basis for a country with the
huge foreign exchange reserves it has, is positive," he said.
China
has
long had economic interests in
Greece
,
primarily in its shipping industry, and views the country as an important
transportation link to Balkan markets, as well as weak link but an important
ally that can support its interests within the European Union.
Papaconstantinou agreed that capital markets have yet to be convinced that the
country can get its financial house in order and avoid a painful debt
restructuring. But he noted that general investor sentiment toward
Greece
has
recently shifted from completely negative to neutral.
"It's beginning to look like a bargain and if you believe in the
sustainability, smart money will start moving sooner rather than later,"
he said. "It is not clear why markets were willing to buy Greek sovereign
bonds back in January and it's not rational to buy now that we have a program
on the table."
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obtains nuclear technology for its uranium enrichment program by either buying
directly from
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using it as a transhipment point.