Stiglitz Sees No Greek Default as ‘Speculative Attacks’ Persist
February 09, 2010, 6:11 PM ESTBy Jennifer Ryan and Andrea Catherwood
Feb. 9 (Bloomberg) -- Nobel laureate Joseph Stiglitz said Greece’s budget deficit reduction plan will prevent a default, and reiterated his call for the European Union to aid the nation against “speculative attacks” in financial markets.
“I’ve been very impressed with the comprehensive approach they’ve had,” Stiglitz said in an interview on Bloomberg Television today. “There’s clearly no risk of default. I’m very confident about it.”
Greek Finance Minister George Papaconstantinou said yesterday that he can’t ask for outside aid as his government struggles to cut the European Union’s largest budget deficit. Papaconstantinou has so far failed to convince investors that he can push the shortfall below the EU’s ceiling of 3 percent of gross domestic product.
“Speculative attacks” in financial markets on Greece pose “a real problem, because if interest rates go up, that increases deficits because you have to pay more in interest, and that can start a vicious spiral that undermines confidence,” Stiglitz said. “That’s why it’s very important for Europe to come forward as an act of solidarity.”
Greek two-year bond yields surged to the highest in almost a decade last month, and traded at 6.617 percent at 11:23 a.m. in London. Greece’s benchmark stock index, the ASE Index, has fallen more than 15 percent since the start of the year.
‘Stand Strong’
“They should stand strong,” Stiglitz said. “The speculators are trying to push them off track.”
Greece’s deficit reached 12.7 percent of gross domestic product in 2009. The government may this week unveil an overhaul of the tax system that imposes the top 40 percent levy on Greeks earning less than the current threshold of 75,000 euros per year to raise revenue.
“I’m really impressed” about “this very ambitious agenda,” Stiglitz said. “The beginning of restructuring their economy has been long needed. But unfortunately it’s a test that has been postponed over and over again.”
Support in Europe for Greece’s plans has been mixed. European Central Bank President Jean-Claude Trichet said Feb. 4 he’s “confident” measures announced by Greece will work and EU Monetary Affairs Commissioner Joaquin Almunia says there’s no “plan B” for Greece. European Investment Bank President Philippe Maystadt said today that the bank can’t rescue member states struggling with budget deficits.
Papaconstantinou said yesterday that asking for outside help would send “the worst possible signal.” He said that Greece “will tackle the deficit,” adding that tax revenues in January exceeded forecasts “by some percentage points.”
Stiglitz, a professor at Columbia University in New York and a former White House adviser under President Bill Clinton, shared the Nobel Prize in 2001 with George A. Akerlof and A. Michael Spence, both of the U.S., for work on problems that arise in markets when parties don’t have equal access to information.
--With assistance from Zijing Wu in London. Editors: Craig Stirling, Andrew Atkinson
To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Andrea Catherwood in London at acatherwood@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net
