Papandreou Pledges to Avoid Default as Bailout Fatigue Builds
September 10, 2011, 3:46 PM EDTBy Natalie Weeks and Eleni Chrepa
(See EXT4 <GO> for more on the sovereign-debt crisis.)
Sept. 10 (Bloomberg) -- Prime Minister George Papandreou said he’ll fight to keep Greece in the euro and avoid a default, as resistance builds to providing more aid to the European Union’s most-indebted nation.
The government’s top priority is “to save the country from bankruptcy,” Papandreou said in a speech in the northern Greek city of Thessaloniki today. “We have taken the decision to fight to avoid a catastrophe for our country and its citizens: bankruptcy. We will remain in the euro. And this meant and means difficult decisions.”
Greek bond yields this week surged to records amid threats by European officials to withhold the loans the country needs to pay wages, pensions and bond redemptions. Police battled protesters with tear gas in Thessaloniki today as demonstrators marched against austerity measures that have cut incomes and driven unemployment to a record. Police in Athens used tear gas to disperse protesters near the Parliament building.
Papandreou spoke a day after the euro slumped to a six- month low and the yield on Greek two-year notes surged to a record 57 percent on concern the country is sliding closer to default. Divisions among EU leaders threaten to scupper a second Greek bailout plan approved in July, and German Finance Minister Wolfgang Schaeuble today reiterated a threat to withhold the next payment from the original rescue unless Greece shows it can meet the fiscal targets agreed with the EU.
Meeting Targets
“If this year the recession is markedly greater than the estimates of international organisations on which the medium- term fiscal plan was based, despite that, Greece will make its fiscal targets, doing all that’s needed in this direction,” Papandreou said.
The austerity measures have deepened the three-year recession and provoked a widespread public backlash. A total of 4,500 police officers were deployed in the city to keep order as 15,000 people protested including students marching against education reforms and taxi drivers opposed new licensing rules. Police detained 94 and arrested two. Guests ran the gauntlet of protesters to reach the venue and were pelted with eggs.
The government now expects the economy to shrink 5 percent this year, worse than the June estimate of 3.8 percent from the EU and International Monetary Fund, and a deeper contraction than in the past two years. The forecast damps hopes that Greece will meet its pledge to lower its budget deficit to 7.5 percent of gross domestic product in 2011, with the government blaming the slump for a budget gap that widened 25 percent in the first seven months of the year.
Situation ‘Critical’
Finance Minister Evangelos Venizelos, who on Sept. 6 promised to speed austerity measures pledged in return for the emergency loans, said today the situation was “critical” and that the next two months would be “decisive for our existence.”
The government must draft a credible 2012 budget, proceed with state asset sales and complete a voluntary debt swap by the end of October, he said.
Speculation of a Greek default is aimed at the euro and it must be countered if the region is to stop the spread of the debt crisis, Venizelos said today in Thessaloniki. “If the euro zone can’t solve the Greek problem, it will show that it can’t solve its own.”
G-7 Meeting
European leaders came in for criticism for their handling of the region’s debt crisis at a meeting of Group of Seven finance minister in Marseille, France that ended today.
“They’re moving, but I think they’re going to have to demonstrate to the world they have enough political will,” U.S. Treasury Secretary Timothy F. Geithner said in a Bloomberg Television interview “This is not a question of financial or economic capacity.”
Canadian Finance Minister Jim Flaherty said yesterday Greece may have to leave the euro if it fails to press ahead with its budget-cutting plans. The comments echoed remarks by Dutch Prime Minister Mark Rutte this week that countries breaking the region’s budget rules should face expulsion.
Germany’s Schaeuble reiterated that Greece must fulfil the conditions laid down in its adjustment program to get the next tranche of international aid due this month.
“There can be no doubt” that the two are linked, Schaeuble told reporters in Marseille, France. “Everybody must stand by the agreements.”
German Banks
Germany is preparing a plan to shore up the nation’s banks in the event that Greece fails to meet the terms of its aid package and misses a payment on its debt, three members of Chancellor Angela Merkel’s coalition said yesterday.
Fears have deepened since a scheduled quarterly review of Greece’s progress by the EU and IMF was unexpectedly suspended for 10 days last week. The cost of insuring Greek debt against default jumped 212 basis points yesterday to a record 3,238, according to CMA. The five-year contracts signal there’s a 92 percent probability the country won’t meet its debt commitments.
Greece’s economy shrank 7.3 percent from a year earlier after declining 8.1 percent on an annual basis in the first quarter, the Athens-based Hellenic Statistical Authority said in an e-mailed statement on Sept. 8. The figure, based on constant prices and available non-seasonally adjusted data, is higher than an Aug. 12 preliminary estimate for a 6.9 percent contraction. A seasonally adjusted figure wasn’t provided.
Nine in 10 Greeks are dissatisfied with the way the government has handled the country’s economic crisis, according to a poll by researcher VPRC for Epikaira magazine on Sept. 8. Greek opposition New Democracy party’s lead over the governing Pasok party is widening, while a majority of voters don’t want early elections, according to opinion polls published last week.
--With assistance from Rainer Buergin, Ian Katz, Theophilos Argitis and Peter Cook in Marseille, Tom Stoukas in Athens and James Hertling in Paris. Editors: Andrew Davis, Maria Petrakis
To contact the reporters on this story: Natalie Weeks in Athens at nweeks2@bloomberg.net; Eleni Chrepa in Athens at echrepa@bloomberg.net
To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net
