(Updates with Provopoulos comments in third paragraph, Draghi in fourth. For more on the euro crisis, click on EXT4)
Nov. 23 (Bloomberg) -- Greece has one last chance to reshape its economy and stay in the euro region, the country’s central bank said, adding to European Union pressure on Greek political leaders to move decisively on economic revamping.
A 130 billion-euro ($174 billion) bailout approved by EU leaders on Oct. 26 “represents a milestone on the adjustment path of the Greek economy,” the Bank of Greece said today in its interim monetary policy report. Greece’s debt-sustainability dynamics have changed in the past year, putting the country in its most critical situation since World War II.
“We must step up the pace not just to reach our goals but to make up for lost ground,” Greek central bank Governor George Provopoulos said in Athens, according to an e-mailed transcript of his statements. “What is at stake is very great: it is Greece remaining a member of the euro and I think that for most Greeks there is no dilemma here. We must succeed.”
Provopoulos’s stark warning echoes that of new Prime Minister Lucas Papademos, a former vice president of the European Central Bank and former head of the Greek central bank, who has said Greece must remain a member of the euro area. Papademos was appointed this month after former Prime Minister George Papandreou’s bid to hold a referendum on the second financing package angered EU leaders, leading to a freeze on payments and throwing markets into disarray.
‘Not in Treaty’
It is also at odds with comments from Provopoulos’s colleagues on the governing council of the ECB. Mario Draghi, the ECB president, said on Nov. 3 a Greek euro exit was “not in the treaty.”
“The new opportunity provided to Greece under the agreement may well be the last opportunity,” the Greek central bank said in the e-mailed report. “The country must avoid any further delays and deviations from targets at all costs.”
Papademos must implement budget measures to get rescue money from the EU and the International Monetary Fund flowing again. That will also mean arranging a Greek debt swap early next year that aims to slice 100 billion euros off the debt burden of 360 billion euros.
Greece needs the cash by the middle of next month to meet payments on maturing bonds and to pay pensions and wages.
German Chancellor Angela Merkel said there will no payout of the next loan tranche from last year’s Greek bailout unless the leaders of all parties supporting the country’s interim government sign a document pledging adherence to austerity and other measures.
“We need not only the signature of the Greek prime minister, but also the signatures of all supporting parties,” she said today in a speech to parliament in Berlin.
On Nov. 22, European Commission President Jose Barroso accused Antonis Samaras, head of the New Democracy party and one the parties backing the Papademos government, of playing “political games” for refusing to commit in writing. Luxembourg Prime Minister Jean-Claude Juncker yesterday set a one-week deadline for Samaras to sign.
Greek Finance Minister Evangelos Venizelos told lawmakers in Athens today that demands from EU leaders for written commitments before paying the 8 billion-euro loan were “no bluff.”
‘Play With Fire’
“Does anyone believe that the money will be paid because our partners won’t leave us hanging?” Venizelos said. “We don’t have the right to play with fire. I am certain that all the country’s political forces as well as the country’s political leaders will do what is needed within the day so that the sixth tranche is released by Dec. 15.”
The Bank of Greece forecasts gross domestic product to drop 5.5 percent in 2011 and 2.8 percent next year before returning to growth in 2013, forecasts in line with the 2012 budget submitted to parliament on Nov. 18. Unemployment may exceed 18 percent next year after coming close to 17 percent in 2011, the central bank said.
Papademos’s government is racing against a Samaras-imposed deadline for elections on Feb. 19 to get approval for the new financing package, which will provide funds to recapitalize Greek banks after they participate in the debt swap.
The ratio of non-performing loans in the Greek banking industry was 12.8 percent as of June 30, up from 10.5 percent at the end of 2010, according to the report.
--With assistance from Christos Ziotis in Athens and Tony Czuczka in Berlin. Editors: Leon Mangasarian, Andrew Atkinson.
To contact the reporters on this story: Marcus Bensasson in Athens at firstname.lastname@example.org; Maria Petrakis in Athens at email@example.com.
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