Sun, May 08, 2011 - Page 1 News List

Eurozone faces up to boomerang Greek debt chaos


Stressed eurozone states from Portugal to Finland yesterday faced up to the need to renegotiate Greece’s bailout repayments as Athens’ “catastrophic” finances returned to haunt the EU.

“We think that Greece does need a further adjustment program,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, said after closely guarded talks in Luxembourg late on Friday.

“This has to be discussed in detail,” he said, indicating it would top the agenda at a two-day meeting of eurozone and EU finance leaders in Brussels on May 16 and May 17.

The resurrection of the Greek debt conundrum will reverberate around political Europe.

To begin with, it is sure to complicate coalition negotiations in Finland with an ultra-nationalist, anti-EU party that scored a significant breakthrough in elections on a platform of refusing to participate in Portugal’s upcoming bailout.

Dow Jones Newswires reported that Germany and France did not see eye to eye during the unscheduled Luxembourg meeting.

Greek newspapers also spoke of postponements on the maturity of 65 billion euros (US$93 billion) in bonds this year and next, a postponement of national deficit reduction targets as agreed with the EU and even a possible “grace” period of no interest payments.

The Greek public deficit for last year was revised upwards, from 9.4 percent of GDP to 10.5 percent.

Athens already owes more than a year-and-a-half of its entire economic output, about 340 billion euros, which markets consider unsustainable, leading to growing fears of ultimate default — the nightmare scenario for the eurozone as a whole.

“We did not discuss an exit for Greece from the eurozone, we think that would be a stupid option,” Juncker said after the talks triggered by concerns in the US and at the IMF, adding they had “ruled out any restructuring of Greek debt.”

The result will leave ongoing EU efforts to close off a sorry chapter at a summit late next month looking ever more complicated.

Greece was due to return to commercial borrowing markets next year, but with current yields on benchmark 10-year bonds hitting 15 percent — junk level compared with Germany — “it is in a pretty catastrophic situation,” according to a source close to the talks.

Propping Athens up beyond next year “is a hypothesis on which we have to work, it’s blindingly obvious,” the source underlined.

The Greek government said the idea it could withdraw or be kicked out was “completely untrue ... provocative ... [and] highly irresponsible.”

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