Greece Will Accelerate State Asset Sales to Stem Debt Crisis as Bonds Drop
The Greek government endorsed an accelerated asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid and stem a market slide that threatens to swamp debt-laden euro-area nations.
Belgium had the outlook on its AA+ investment-grade credit rating lowered to negative by Fitch Ratings yesterday as the cost to insure Greek debt against default rose to a record and the yield on its 10-year bonds increased to a euro-era high.
Europe’s debt crisis has deepened as euro political leaders clashed with central bankers after floating the prospect of extending maturities on Greek bonds. That “soft” restructuring may also be accompanied by more loans to Greece, which received a 110 billion-euro bailout last year, now that the government has delivered the additional budget cuts and pledged to speed asset sales.
“There may be slipping, sliding into some sort of re- profiling of Greek debt,” Simon Johnson, an economist at the Massachusetts Institute of Technology, told Bloomberg Television’s In the Loop yesterday. “They may be about to face their own special European Lehman moment.”
To avert that possibility, Greek Prime Minister George Papandreou’s Cabinet agreed yesterday to sell stakes in Hellenic Telecommunications Organization SA (HTO) by the end of next month, as well as Public Power Corp SA (PPC), Hellenic Postbank SA, and the country’s ports.
The state’s stakes in those three companies currently have a market value of 2.1 billion euros. The government also said it would create a fund comprising assets to accelerate the sales, intended to raise 50 billion euros by 2015. The bulk of that will come from selling 35 billion euros of real estate.
Greek 10-year yields were little changed at a record 17 percent, while yields on two-year notes slipped 18 basis points to 26.07 percent. Contracts on Greek default insurance jumped 27 basis points to a record 1,400.
The government plans to complete the sale of Postbank by the end of the year, and to sell 75 percent stakes in Piraeus Port Authority and Thessaloniki Port Authority SA. It also intends to extend the concession for Athens International Airport this year.
Greece owns 20 percent of Hellenic Telecommunications, or OTE, which has a market value of 3.2 billion euros. It has the right to sell a 10 percent stake to Deutsche Telekom AG, which already holds 30 percent. The government is seeking financial advisers to exercise the put option, and for the sale of a further 6 percent of the company, the finance ministry said.
The Cabinet also announced the additional budget cuts worth about 2.8 percent of gross domestic product needed to reach a 7.5 percent deficit target for 2011 even as its economy contracts for a third year, Finance Minister George Papaconstantinou said.
“With an economy still in recession, it’s very difficult to keep piling on larger amounts of fiscal tightening,” said David Mackie, London-based chief European economist at JPMorgan Chase & Co. on a conference call yesterday. “I think instead we are moving to an environment where asset sales are going to be used as the key means of signaling Greece’s commitment here.”
Greece has a “refinancing hole” of 30 billion euros for both 2012 and 2013 each, according to economist Nouriel Roubini. The nation could restructure by issuing debt with lower interest payments and extend maturities as it’s unlikely the nation will “regain market access for the next five to 10 years,” he said in an interview last week.
The European Commission on May 13 said that the deficit would be 9.5 percent of GDP this year, more than three times the EU limit, without the additional budget cuts approved yesterday. Debt, already the euro area’s biggest relative to economic output, may reach 158 percent of GDP this year and peak at 166 percent next year.
Fitch may cut Belgium’s grade, the second-highest rating, should the country fail to adhere to its deficit targets, according to a statement. Belgium needs to reduce its shortfall to less than 3 percent of GDP next year and balance its books by 2015, as agreed with the European Commission.
A caretaker administration has ruled Belgium since elections last June as tensions in the linguistically divided nation led to the longest postwar political stalemate in Western Europe. A strengthening economic recovery has helped shrink the deficit to an estimated 3.6 percent of GDP this year from 5.9 percent in 2009, though reducing the debt will require political resolve, Fitch said.
To contact the editor responsible for this story: Craig Stirling at firstname.lastname@example.org
Bloomberg moderates all comments. Comments that are abusive or off-topic will not be posted to the site. Excessively long comments may be moderated as well. Bloomberg cannot facilitate requests to remove comments or explain individual moderation decisions.