Greece must avoid debt restructuring and push on with budget cuts and privatizations to overcome its debt crisis, Greek Prime Minister George Papandreou and senior European Central Bank (ECB) officials said on Saturday.
Papandreou must present a fiscal plan next week that is credible enough for the EU and the IMF to continue bankrolling his debt-laden country.
However, a large majority of Greeks reject more austerity, according to a poll published on Saturday, which also showed the ruling Socialists losing their lead over the conservative opposition for the first time since their 2009 election victory.
“Debt restructuring is not under discussion,” Papandreou said in an interview in yesterday’s Ethnos newspaper.
One year into its EU-IMF 110-billion euro (US$156 billion) bailout, Greece is struggling with weak revenues and a deep recession, fueling speculation that it will have to restructure its debt to pull itself out of the fiscal mess that triggered the euro zone crisis.
The chairman of the 17-country Eurogroup Jean-Claude Juncker said on Tuesday that Greece may have to move towards a “soft restructuring” of its debt.
However, the ECB remains strongly opposed to such a move, because of fears that it would -destabilize the euro.
Greece has no other option but to follow through with its fiscal plan, ECB governing council member Ewald Nowotny told Greek newspaper To Vima on Saturday.
“For the ECB, the line is one and clear: You have to implement the commitments you have made,” he said.
In a separate interview in newspaper Kathimerini, ECB executive board member Juergen Stark said any kind of debt restructuring would thwart the country’s return to bond markets and undermine reforms.
“We are at a critical juncture, what it really takes now is action,” Stark said.
On Friday, Fitch became the second major ratings agency to warn that it would consider any kind of debt restructuring as a sovereign default — exactly the kind of outcome eurozone governments are trying to avoid.
Asked by Ethnos if he would consider a debt “reprofiling” rather than a restructuring, Papandreou said: “We are looking after our job ... We do not join the public discussion about such scenarios.”
Greece is considering deeper cuts in public sector wages and further tax increases on a range of products and professions to qualify for more aid, Greek newspapers said on Saturday.
The plan may include scrapping bonuses to civil servants and employees in state-run companies, newspapers Ta Nea and Isotimia reported, without citing any sources.
The government may also lower or scrap tax-free thresholds on property holdings and the self--employed, raise consumption taxes on soft drinks and certain types of fuel or shift a range of products to a higher VAT-bracket, other newspapers said.
Papandreou vowed on Saturday to take any measure necessary to secure more funding for his country.
“Greece must convince everyone of its determination,” he said.
He pledged to speed up a 50 billion euro privatization program, a key part of efforts to shore up public finances without debt restructuring. However, he reiterated that the state would keep stakes in firms managing vital public goods and services, such as water and electricity utilities.
Meanwhile, Juncker urged Greece to set up a trustee institution to help privatize state assets, similar to the body that privatized East German companies after the fall of communism.
Juncker, who chairs meetings of eurozone finance ministers, suggested setting up a Greek version of Germany’s so-called Treuhandanstalt agency in an interview with news weekly Der Spiegel, excerpts of which were released on Saturday.
“I would welcome it very much if our Greek friends founded a privatization agency independent of the government and modeled after Germany’s Treuhandanstalt,” Juncker said, adding that such a body should be staffed by international experts.
“Henceforth, the European Union will escort Greece’s privatization program as if we were conducting it ourselves,” he said.
Proceeds from the program should be considerably higher than the 50 billion euros Athens has proposed, he added.
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