Papaconstantinou Says EU Budget Cuts May `Choke Off Growth'
Greek Finance Minister George Papaconstantinou said he’s concerned markets may force European nations into too-severe budget cuts that could push economies back into a slump.
“I am not one of those who thinks all the European countries should press on the brakes and do deficit reduction in the way that would choke off growth,” Papaconstantinou said at an event in London late yesterday. “There is a story to be told, whereby some countries have to do serious deficit belt- tightening, others less so.”
European governments have stepped up deficit-cutting measures in the wake of the Greek fiscal crisis this year that prompted the European Union to set up a fund to aid indebted nations. Coupled with a cooling global recovery and a strengthening euro, the deeper fiscal squeezes may curb the region’s economic growth.
“I worry very much if we simply all get into a situation where we are forced by markets to reduce our deficits,” which may “lead to a double-dip recession,” he said.
Greece was forced to seek an aid package from the EU and International Monetary Fund after its borrowing costs soared and it was shut out of debt markets. Papaconstantinou said Greece’s situation still calls for aggressive fiscal steps.
“Implementing what we have already agreed to in the timeframe we have agreed to is a task in itself,” he told reporters after the event. “Obviously, the more and the faster we do it, the better.”
The finance minister also said there is now “concern” about other so-called peripheral nations in the euro region.
“There’s a more general issue around some of the peripheral countries in the euro area, that’s what we’re seeing at the moment,” Papaconstantinou said. “There is concern around that.”
Irish bonds fell for an 11th day today, pushing the yield premium on the country’s debt over German bunds to a record 554 basis points. The premium has more than doubled in the past three months on investor worry Ireland’s government won’t be able to reduce its deficit or cover the cost of bank bailouts without outside help.
The spread on Portuguese debt widened to 446 basis points from 439 basis points yesterday. It was at 248 basis points three months ago. Greece’s spread was at 902 basis points today.
Papaconstantinou also said he is not discussing any restructuring of Greek debt, and he expects economic growth to resume as a result of the government’s structural reforms.
The EU-IMF package “shields us from the difficulties in the market until early 2012” as long as “we continue with implementation of the program,” he said. “This gives us the time to be able to convince the market that we are on a sustainable path.”
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