Loan relief granted to Greece last month may be inadequate to restore the country’s financial health, German Finance Minister Wolfgang Schaeuble said after European officials again ruled out debt restructuring.
Euro-area leaders decided on March 11 to reduce interest rates on loans for Greece under its 110 billion-euro ($159 billion) rescue package and to extend their maturities. Greece also gained the right to sell bonds directly to the region’s rescue fund.
“Whether that is enough and how this continues will have to be monitored closely,” Schaeuble told reporters today after a meeting of European Union finance ministers and central bank chiefs in Godollo, Hungary.
The doubts about Greece’s finances emerged as EU officials said a planned aid package for Portugal would draw a line under the region’s debt crisis, which was triggered by Greece and engulfed Ireland four months ago, when that nation received an 85 billion-euro rescue. The funds for Portugal are projected by the EU to total around 80 billion euros.
In return for aid, the government of Prime Minister George Papandreou has pledged to bring Greece’s budget shortfall to within the EU’s 3 percent limit in 2014. The deficit soared to 15.4 percent of gross domestic product in 2009. Greece intends to return to the markets for financing next year at the latest.
Shrinking Economy
Greece’s economic contraction is projected at 3 percent in 2011 as austerity measures bite. The economy shrank 4.5 percent last year, more than forecast. The nation’s overall debt will peak at 159.4 percent of GDP in 2012, according to EU projections made Feb. 24.
“We do exclude restructuring,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Hungary today. “We have a solid plan and we are working on the basis of that plan. And it is based on very careful analysis of debt sustainability.”
Appearing with Rehn, European Central Bank President Jean- Claude Trichet stressed the importance of the Greek austerity plan. In February, Trichet said “that program does not comprehend” the concept of losses for bondholders.
At the meeting in Hungary, euro-area finance ministers ratified last month’s decisions to cut the average rate on loans to Greece by 1 percentage point, to around 3.5 percent, and to lengthen the maturities to 7 1/2 years from three.
German Division
“It’s known that Greece has a strong refinancing requirement in coming years,” Schaeuble said. “That’s one of the reasons why we agreed in principle to extend the maturities for aid to Greece. We can’t say for good today whether that’s enough.”
Lawmakers from Chancellor Angela Merkel’s coalition on April 7 didn’t rule out a restructuring of Greece’s debt, breaking with the official stance in Germany and in the EU.
As part of their March 11 accord, euro-area leaders also decided to let the European Financial Stability Facility, whose current role is to sell bonds to finance rescue loans, buy bonds directly from euro-area nations that are in an aid program.
Four days later, Greek Finance Minister George Papaconstantinou said this would offer an “exceptionally important” backstop in 2012 as Greece seeks to tap the markets for financing.
By Jonathan Steams and Rainer Buergin
source: Bloomberg
