Greece says debt threatens nation, promises action
by John Hadoulis
ATHENS (AFP) – The Greek government warned on Wednesday that the country is imperilled by debt and pledged urgent action to restore confidence under pressure from financial markets and the European Union.
“Either we eradicate the debt, or the debt will eliminate the country,” Prime Minister George Papandreou said, using a phrase first used by his father Andreas, who was prime minister over a decade ago.
And in his warning to the cabinet he referred to the year when democracy was restored in Greece after a seven-year army junta: “For the first time since 1974, the country’s public finance deadlock threatens our national sovereignty.”
He declared: “We are determined to do whatever is necessary to check the huge deficit, to restore stability in public finances, to promote development.”
And he said: “It is the only way to ensure that Greece does not lose its sovereign rights.”
The government revealed earlier that it is working on radical action to reverse a deepening financial crisis which is straining eurozone cohesion and focusing market anxiety on emerging economies.
Papandreou’s statement followed a string of blows from credit rating agencies and tough words from top EU officials, and to clear signs of a loss of confidence on financial markets.
UniCredit fixed income strategist Luca Cazzulani told AFP that the yield or interest on Greek bonds was 2.44 percent higher than on benchmark German bonds, which he said was “definitely much higher than a week ago.”
Greek analysts noted that Papandreou’s escalating rhetoric reflected a sense of urgency, but that markets would not be appeased until tangible measures began to be implemented.
“I think the government will meet its targets, purely because they have no choice,” said George Pagoulatos, a professor at Athens Economic University.
“If they do not, the market’s revenge will be merciless,” he told AFP.
Greece has undermined its credibility with the revelation of a public deficit expected to surge to 12.7 percent of output this year, and a ballooning debt which amounts to 113 percent of gross domestic product.
Greek shares fell sharply for a second day, closing 3.36 percent down after a 6.04-percent fall on Tuesday, and the problems here were also spotlighted by new debt strains in Dubai. These two crises have undermined confidence in weaker emerging markets, and in Russia the ruble slumped.
Shortly before the prime minister spoke, the Fitch ratings agency landed another blow by putting all of the structured financial deals which it rates in Greece under negative watch.
The problems in Greece and Dubai are alarming financial markets and are also revealing deep tensions within the eurozone.
“There are questions or whether all this may impact on the eurozone’s survival, but I think that is an excessive prospect for even the most extreme scaremongers,” Pagoulatos said.
“It is almost certain that other countries will intervene, they just can’t very well say so beforehand because they do not want to create a precedent.”
“And of course, any bailout would come with very stringent conditions,” he said.
Greek policy so far contrasts with action in two other heavily deficit-burdened countries, Britain and Ireland which were announcing deep cutbacks on Wednesday.
Many analysts interpret comments from top European officials as a warning to Greece that it cannot count on being helped out of its debt and confidence crisis, without demonstrating that it is taking tough corrective action.
French Finance Minister Christine Lagarde said that Greece was not on the verge of financial collapse, but stressed that the Greek government had made promises to EU members which it now had to respect.
And Swedish Finance Minister Anders Borg suggested that European countries were not inclined to help Greece out of its budget crisis and urged Athens to “apply serious budget policies.”
His remarks followed unusually strong comment from the head of the European Central Bank, Jean-Claude Trichet on Monday, saying that the situation in Greece was “very difficult” and that “courageous” action was needed.
Rabobank analysts commented: “The recession that has been raging in Europe since the middle of 2008 has exposed those countries with weak government finances.”
The Greek credit rating problems also highlighted a danger that Greek banks, some of which were also downgraded on Tuesday, are at risk of not being able to borrow from the European Central Bank under normal terms.
On Tuesday, Fitch downgraded Greek long-term debt ratings because of “the weak credibility of fiscal institutions and the policy framework.” Standard & Poor’s has warned it could follow suit.
Finance Minister George Papaconstantinou acknowledged: “It is clear that the downgrading from international agencies complicate the government’s task.”
http://www.google.com/hostednews/afp/article/ALeqM5jY0rVqaOD88rpo5xHlSZLa6nwbIA