AP Interview: Greek FinMin says markets likely to wait until year end to react to reforms

By Elena Becatoros, AP
Monday, August 30, 2010

Greek FinMin: markets still assessing reforms

ATHENS, Greece — The international bond markets will likely wait until the end of the year before passing judgment on Greece’s efforts to overhaul its economy and pull itself out of a debt crisis that nearly led to the country’s bankruptcy earlier this year, the finance minister said Monday.

George Papaconstantinou told The Associated Press in an interview that the markets needed time to be convinced that the government was meeting all its targets in a raft of reform and austerity measures introduced over the last few months. In return, Greece got a financial lifeline from its partners in the eurozone and the International Monetary Fund.

Greece’s cost of borrowing remains way too high for the government to tap the markets for cash yet.

“Markets are not convinced overnight. They need the time. We believe at the moment they are overpricing Greek risk,” Papaconstantinou said.

The finance minister said attention will be focused on whether the government hits its targets this year, including whether it manages to reduce its deficit from 13.6 percent of gross domestic product in 2009 to 8.1 percent. So far, it is slightly ahead of its overall targets, with better than expected performance on spending cuts offsetting a lag in revenue. An EU and IMF review earlier this month said Greece had made “remarkable” progress in its reforms.

“I think you will see a change starting in early 2011 which would allow us to come back to the market sometime in 2011,” Papaconstantinou said.

Greece has essentially been shut out of borrowing on the international market for months, after an admission that the previous government had fudged the country’s financial statistics sent its borrowing costs spiraling to unsustainable levels.

Unable to tap the markets and in danger of defaulting on its debt, Greece sought help from the IMF and the eurozone and is currently receiving rescue loans from a three-year euro110 billion ($140 billion) package.

In return, it is implementing a strict austerity plan that has seen it cut civil servants’ salaries, trim pensions, overhaul the social security and pension systems and increase taxes.

The country is “at the most difficult point” of pulling itself out of the crisis, Papaconstantinou said, adding that positive results were already starting to show.

Athens has already said it will start issuing monthly treasury bills from September, although Papaconstantinou said it was still unclear when the government might test the waters with a longer-term bond.

“It will depend on how quickly conditions normalize,” he said, adding that “it’s clear that at the moment it is of course way too early for that.”

Greece can continue drawing rescue loans for three years, provided it meets all the targets in each of its quarterly reviews. It is due to receive the second installment in September, after an EU and IMF review said the country had made “remarkable” progress in its reforms.

The minister said it was too early to speculate on whether Greece would try to leave the rescue program early or ask for an extension.

“There is a program with a specific timetable, we’re abiding with that at the moment and we’re not having second thoughts about alternative timetables,” he said.

Greece is currently in a recession — although the government has said it is milder than initially expected and the economy will shrink by less than the forecast 4 percent this year.

The minister noted that while it was clear there would be negative GDP growth rate this year and next, “hopefully by mid-2011 you’ll start seeing some positive signs of quarterly GDP. When exactly is of course an open question. That will be the signal that there is a resumption, a serious resumption of growth.”

That, coupled with the structural reforms the government is pushing through, will persuade those seeking to invest in Greece, he said.

“It will convince them that the medium term outlook of the debt is actually manageable,” he said. “Because that is the last remaining element that is out there.

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