Brussels assuages fears of default

Finance Minister Giorgos Papaconstantinou urged investors and the EU yesterday to give the government time to restore the nation’s lost credibility, as a senior European Commission official pledged to protect the country from bankruptcy if needed. «Over the past few days, there has been speculative play and unfair reports,» Papaconstantinou said. «The reports were unfair to the country’s financial sector, which is much healthier than that of other countries, and they were also unfair to a government of just 50 days, which really wants change and reforms.» Greek markets took a beating last week on investor concerns about ballooning debt and deficits – affecting Greek bonds, which are used as collateral by banks to raise money from the European Central Bank. Both bank shares and the Athens bourse dived. The premium investors’ demand to hold 10-year Greek government bonds rather than benchmark German Bunds hit a seven-month high of 217 basis points last week before easing to 177 bps yesterday. Comments by European Commissioner for Economic and Monetary Affairs Joaquin Almunia that Brussels will not allow Greece to go bankrupt due to its eurozone membership, helped to ease investor concerns over the possibility of sovereign default. Greece will need to pay more to borrow money but there is no danger of bankruptcy due to the Commission’s support, according to Almunia, who will take on the competition portfolio next year. Meanwhile, EU finance ministers are expected tomorrow to take disciplinary action against Greece to the level just before the issuance of fines for failing to take the necessary action to curb its rising deficit. Based on EU Commission forecasts, Greece’s mountain of debt will rise to 124.9 percent of gross domestic product next year, becoming the highest ratio in the 16-nation eurozone.

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