Statements tarnish credibility

Worries about a possible Greek default or a debt restructuring increased at the start of the week on the back of statements by top government officials, as a leading analyst insisted that it would be difficult for Greece to avoid bankruptcy. Once again, the spread between the yields of the Greek benchmark 10-year bond and the German Bund widened further, stretching from 825 basis points on Friday to 838 bps yesterday, while the local stock market suffered a fresh decline. New pressures on the Greek bond market were triggered by talk at the European Union summit about the application of a procedure for a controlled default by Greece, as well as comments made by Deputy Prime Minister Theodoros Pangalos, who insisted on Sunday that Greek debt restructuring is still an option. Yesterday, Labor and Social Insurance Minister Louka Katseli added that «it would be good to achieve a negotiation for prolonging the repayment period of the troika’s debt,» referring to the 110 billion euros Greece will borrow by 2012 from the European Central Bank, the other eurozone countries and the International Monetary Fund. «Any extension would be positive as it would release funds for growth,» the former economy minister added. Sources said that the government is currently locked in negotiations with the IMF and eurozone regarding changes to the terms and conditions of the loan contract. The talks concern the extension of the repayment period. There have been no decisions made as yet but it appears that negotiations are at an advanced stage. Greece’s aim is to change the contract from the first quarter of 2011 and extend the repayment period from two to five or six years as well as prolonging the grace period which at present stands at three years. In the midst of this process, however, US economist Nouriel Roubini stressed once again that Greece’s bankruptcy is only a matter of time. The Nobel laureate said: «The data speak very clearly. Even if the country implements its draconian cuts program, which I very much doubt, the burden of the debt according to the IMF forecast will remain considerably higher than 100 percent of gross domestic product. Even the most minor external shock could become a problem beyond control for the Greek debt.»

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