Greece Debt-Slash Plans Fail to Quell New Debt Worries

Friday, 15 Apr 2011 12:20 AM

 

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Greece laid out plans to sell stakes in key state firms and make further budget savings on Friday, hoping to avert a debt restructuring which financial markets view as increasingly likely.

The premium it costs Athens to borrow on debt markets rose sharply for a second day — by more than half a percentage point — after a German deputy minister was quoted as saying it "would not be a disaster" for Greece to restructure.

Greece said budget slippages this year will be covered with additional measures totalling 3 billion euros ($4.33 billion), including fighting tax evasion and further state spending cuts, while privatisations will bring in 2 billion euros to 4 billion euros in 2011.

"The government presented today a broad and specific mid-term fiscal plan up to 2015," Finance Minister George Papaconstantinou told Reuters. "This shows the commitment and willingness to proceed with fiscal consolidation and proceed further with structural reforms."

Speaking to a cabinet meeting, the minister said Greece will sell its stake in betting firm OPAP, Europe's biggest, and reduce its stake in power utility PPC from 51 percent to as low as 34 percent by next year but retain management.

European policymakers have scrambled to reassure investors this week that a restructuring for Greece was not on the agenda, saying such a step could have dire consequences for European banks and the fragile economy of the 17-nation euro zone.

But Germany's finance minister has acknowledged that further steps may be necessary and analysts say that could involve asking bond investors voluntarily to accept changes such as smaller or later payments.

"A haircut or a restructuring of the debt would not be a disaster," news agency Bloomberg quoted Werner Hoyer, one of Berlin's deputy foreign ministers and a member of the junior coalition party Free Democrats (FDP) as saying.

If Greece's creditors agreed that talks with Athens "would be helpful toward a restructuring of the debt, then of course this would be supported by us," Hoyer was quoted as saying.

FISCAL MEASURES

The lack of detailed commitments in a keynote speech by Prime Minister George Papandreou earlier on Friday had seen Greek stock markets fall 2.7 percent. The spread of 10-year Greek yields over German Bunds widened to 1.059 basis points.

Papandreou said more details and timetables about the measures would come after Easter.

"The plan will be completed in the coming weeks and will be then submitted to parliament," Papandreou told a cabinet meeting. "Today we are presenting the basic guidelines of a roadmap that will lead us from the Greece of crisis to the Greece of creativity."

Analysts said the specifics on privatisations were welcome news, showing political determination in the face of labour and opposition parties' reaction.

"I think the market will react positively to the planned state divestments, which show that the government is determined to move forward despite union opposition," said Theodore Mouratidis, an investment adviser at Fortius Securities.

But analysts said fiscal steps were less convincing. The government has seen disappointing revenues due to tax evasion and deepening recession threaten to derail fiscal targets agreed with the EU and IMF in exchange with a 110 billion euro bailout.

"I don't think it will provide investors with much reassurance," said Ben May of Capital Economics.

"Even if the measures were enough to get the deficit down, there is just underlying concern the debt has ballooned to a level which is just unsustainable and the government will not be able to get that debt down to a sustainable level without some form of debt restructuring."

As expected, Greece said sell-offs, benefit cuts and effective tax hikes would save about 23 billion euros in 2012-2015 and bring its budget deficit to about 1 percent in 2015 from 15.6 percent in 2009.

It also outlined how it intends to raise 50 billion euros from privatisations by 2015, a target which many analysts and Greek politicians see as optimistic. It said it planned to promote real estate asset sales from October 2011.

The adoption of the mid-term fiscal plan was scheduled before increased speculation about restructuring, an unexpected upwards revision of its 2010 deficit and below-target revenues in January and February put additional pressure on Athens.

Greek unemployment also hit a new record of 15.1 percent in January.

© 2014 Thomson/Reuters. All rights reserved.

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