Papandreou Says Crisis Accord Buys Time for Greece by Easing Debt Burden
Prime Minister George Papandreou urged Greeks to support his efforts to revamp the economy after euro-area leaders hammered out a new bailout package for the country and imposed deeper losses on bondholders.
“The crisis gives us the opportunity and this agreement gives us time,” Papandreou said on television late yesterday after he and fellow government chiefs forced investors to accept 50 percent writedowns on Greek debt. “We negotiated and managed to erase a very important part of our debt. Tens of billions of euros have been lifted from the backs of the Greek people.”
European Union leaders boosted their rescue fund’s capacity to 1 trillion euros ($1.4 trillion) and carved out the second aid package for Greece at a summit in Brussels lasting into the early hours of yesterday. The 17-nation currency and stocks climbed while bond spreads narrowed on optimism Europe might contain turmoil threatening its economy.
“If Greece had declared bankruptcy, it would have been a process that would have escalated,” French President Nicolas Sarkozy said on French television late yesterday. “Greece can save itself, but it has to make efforts.”
The reworked deal on Greece will cut the debt ratio to 120 percent of gross domestic product by 2020 from a forecast of about 170 percent for next year. The 130 billion euros in public funding plus the 50 percent writedown on Greek debt follows a fully taxpayer-funded package of 110 billion euros in May 2010. Papandreou needs support from his voters to push through measures including job cuts to turn around an economy that is set to shrink 5.5 percent this year.
The new package will reduce debt by about 100 billion euros and the interest the country pays by as much as 5 billion euros a year, providing a firmer basis for Greece to enact reforms and produce primary surpluses, Finance Minister Evangelos Venizelos told reporters in Athens yesterday.
“We must continue with structural reforms, implementation of the memorandum and the medium-term fiscal plan,’ Venizelos said. “But this is a much better starting point for the 2012 budget, because we will see lower interest payments.”
Papandreou, who now has just a three-seat majority in parliament, won approval for a new round of pension and wage cuts last week to secure the aid, amid protests that left one person dead. It was the second set of austerity measures in four months to prompt a near-rebellion in Papandreou’s party and violence in the streets. He assured Greeks yesterday that banks and pension funds would be protected.
“We will need to work together on this path we have chosen”, Papandreou said. “Only we can fix Greece and no one else. We can’t wait for magicians or a deus ex machina to do the work for us.”
Some of his fellow citizens did not heed that call today, the anniversary of Greece’s refusal to surrender to an Italian ultimatum that led to the country being dragged into World War II. The anniversary was marred by protests in Thessaloniki, the second-biggest city, which forced the cancellation of a military parade for the first time in 71 years. Smaller protests were also recorded in other cities.
“I am deeply saddened,” President Karolos Papoulias told reporters as he was forced to leave the podium in Thessaloniki. “I fought for my country at 15. They cannot call me a traitor.”
Opposition parties are calling for early elections, which Papandreou has resisted. New Democracy party leader Antonis Samaras, who leads Papandreou in opinion polls, said yesterday the new aid proved the failure of the government’s policies.
“The country’s debt in 2020 will be 120 percent of GDP, equal to the debt in 2009,” Samaras said in a televised address. “Greece needs above all an economic recovery.”
The greater loss for bondholders “arguably brings debt sustainability into the realms of the possible over the current decade, but this position is fragile and dependent on a set of rather optimistic macro assumptions,” wrote Nicola Mai, an economist at JPMorgan Chase Bank in London. If Greece fails to generate “meaningful growth” over the second half of the decade “further debt restructuring may be necessary”.
The new program includes more than the 109 billion euros in official aid envisioned in July. Last-ditch talks with bank representatives led to the debt-relief accord, in an effort to quarantine Greece and prevent speculation against Italy and France from ravaging the euro area and wreaking global havoc.
On French television yesterday, Sarkozy said it was a “mistake” to let Greece into the euro area given the country’s economic situation at the time.
“Its accounting was not clear, the country wasn’t ready, its economy was not ready,” Sarkozy said.
Still, the agreement that Greek bondholders should incur a 50 percent writedown on their securities risks driving up borrowing costs for the region’s weaker nations, BNP Paribas SA said in an investor report.
“We are concerned that reassurances about Greece being a one-off may be discounted by some in the market,” analysts including Cyril Beuzit, head of interest-rate strategy in London, wrote in the report, dated yesterday. “The tough treatment of Greece’s creditors increases contagion risks.”
To contact the editor responsible for this story: Tim Quinson 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.