Greece Says Call for Aid Would Send ‘Worst Signal’ (Update2)

Feb. 9 (Bloomberg) -- Greek Finance Minister George Papaconstantinou said he can’t call for outside aid as his government struggles to cut the European Union’s largest budget deficit.

“The worst possible signal which we could send out is one calling for outside help,” he said in an interview with Bloomberg Television in Athens yesterday. “We will tackle the deficit,” he said, adding that tax revenues in January exceeded forecasts “by some percentage points.”

Papaconstantinou has so far failed to convince investors that Greece can push the deficit below the EU’s ceiling of 3 percent of gross domestic product. With European leaders meeting on Feb. 11 to discuss the economic outlook, Greek two-year bond yields have surged to the highest in almost a decade and concerns about budget sustainability are spreading to Spain and Portugal.

“The current state of the markets suggests Greece may need conditional support from the key European institutions and governments,” said Janet Henry, chief European economist at HSBC Holdings Plc, in an e-mailed note.

ECB ‘Confident’

The premium investors demand to hold Greek 10-year government bonds over comparable German debt fell 7 basis points to 354 basis points today, down from an 11-year high of 396 basis points on Jan. 28. The benchmark ASE stock index gained almost 3 percent today, after declining 12 percent in the previous four sessions.

European finance officials are for now sticking to their line that Greece, which has a deficit of 12.7 percent of GDP, won’t need outside help. European Central Bank President Jean- Claude Trichet said on Feb. 4 that he’s “confident” measures announced by Greece will work and EU Monetary Affairs Commissioner Joaquin Almunia says there’s no “plan B” for Greece.

Papaconstantinou said he wasn’t aware of any EU plan to aid Greece.

“We have no knowledge or have been involved in any discussion of the type,” he said. “We have said time and again that Greece will be implementing the stability and growth program to the letter.”

Trichet Returns

Greece’s budget woes threaten to overshadow a summit of European Union leaders that compelled Trichet to shorten his trip to a Reserve Bank of Australia symposium in Sydney by one day. The EU meeting was called to lay the groundwork for a 10- year economic program to strengthen the region’s competitiveness.

The EU should openly pledge to aid Greece as a way of calming financial markets, and there is “clearly no risk of default,” said Nobel laureate Joseph E. Stiglitz in an interview in London today.

“It is very import for Europe to come forward with an act of solidarity,” he said. “That is one of the flaws of the euro, that you created a monetary system without the underpinning of the fiscal basis that you need.”

Papaconstantinou said yesterday that Greece’s budget plan will get the “green light” from European finance ministers when they meet on Feb. 15-16. He may this week unveil an overhaul of Greece’s tax system that imposes the top 40 percent levy on Greeks earning less than the current threshold of 75,000 euros per year.

Pension Changes

Today the government confirmed that it will raise the average retirement age by two years to 63 years, as part of an effort to prevent pension spending from straining finances. Papaconstantinou also said that the government measures were already working and spending was less than forecast in January.

“Expenditure is clearly under control,” Papaconstantinou Said. “It is below the target for the month. That means the deficit reduction for January is well within what we have promised.”

Investors are turning a deaf ear to EU officials as Greece’s fiscal woes focus their attention on gaping budget deficits across the euro region’s southern fringe. Credit- default swaps on Spain and Portugal rose to a record yesterday.

“Greece, Portugal and Spain have the most challenging fundamentals but Italy and Belgium could also start to raise some concerns,” said HSBC’s Henry.

Italian Finance Ministry Undersecretary Luigi Casero told Sky TG24 yesterday his government must “maintain a policy of fiscal rigor” to avoid “difficulties.”

Trichet’s efforts to shore up confidence in the euro region as a whole are also being ignored. While the ECB president said on Feb. 4 the bloc’s combined budget deficit may be lower than those of the U.S. and Japan this year, the euro fell the next day, extending its slide since the start of December to almost 10 percent.

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; David Tweed in Athens on jtweed@bloomberg.net.