ECONOMY

Greece reassures investors and peers

Finance Minister Giorgos Papaconstantinou sought to reassure nervous investors and his counterparts from the European Union yesterday that the country’s economy would return to a sustainable path thanks to reforms and fiscal cuts. «I can assure you that neither Italian nor other banks have reason to worry about Greek government bonds,» the minister told a news conference during a meeting of EU finance ministers. «Any scenarios having to do with instability in the Greek economy are completely unfounded,» he added. Greece faced a spike in the cost of selling bonds in recent weeks, compared to other countries that use the euro currency, reflecting investor concern over the government’s ballooning budget deficit and mounting public debt. Investors, however, grew calmer yesterday as the premium demand to hold 10-year government bonds rather than benchmark German Bunds fell to its lowest in two weeks, easing to 167 basis points from 217 basis points last Friday. This was partly thanks to eurozone officials’ statements late on Tuesday that Greece would avoid bankruptcy. On borrowing, Papaconstantinou said Greece had no plan to sell bonds to China, as reported by local press. «There is no such plan in the works. At the same time, it is very clear that, like every country, we are looking at any possible diversification regarding our borrowing needs,» he said. Papaconstantinou said he had agreed to present fellow EU ministers with a more detailed plan to improve Greece’s fiscal position in January, including provisions to broaden the tax base and reduce government expenditures. EU finance ministers vowed to keep up pressure on Greece to cut a «worrying» budget deficit, saying the country faces new European Union demands in February if it doesn’t comply. All the elements will be included in a timetable, providing a road map for Greece to return to sustainable finances, said Papaconstantinou. It will be «the same kind of timetable that other countries, starting from similar positions, have. We do not want special treatment,» he said. Many other countries received deadlines of between 2012 and 2014/15 for cutting their budget gaps to beneath the level outlined in the Stability and Growth Pact, as proposed by the European Commission in November under EU budget rules. Concerns misplaced Investor concerns that the Greek government is facing a liquidity crunch are not justified, although longer-term erosion of the country’s growth potential could hurt its creditworthiness, ratings agency Moody’s said yesterday. «Investor fears that the Greek government may be exposed to a liquidity crisis in the short term are misplaced,» Moody’s said in a report. The agency, which had placed Greece’s sovereign rating under review for possible downgrade in October, says its concerns are related to the erosion of the economy’s long-term potential, not to short-term liquidity risks. «Indeed, the risk that the Greek government cannot roll over its existing debt or finance its deficit over the next few years is not materially different from that faced by several other euro area member states,» said Arnaud Mares, senior vice president at Moody’s Sovereign Risk Group. However, the agency continues to be concerned that a longer-term erosion of Greece’s economic growth potential will translate into an inevitable deterioration of its creditworthiness.