Daily News - A year after bailout, Greece struggling to cope (AFP) Daily Business News
AFP/File – Activists stand by a banner depicting Greece's yearly spending with black showing military expenditure … ATHENS (AFP) – A year after Greece took an EU-IMF bankruptcy bailout and bit into a bitter austerity pill its economy is still in dire straits with recession and an oversized debt making it a market pariah.
The country this week announced a new round of fiscal measures and a massive privatisation drive in a bid to banish talk of an inevitable restructuring of its debt, now at 340 billion euros ($492 billion) and ticking ominously.
But despite the effort, investors see restructuring as a bygone conclusion as the Greek recovery programme supervised by the European Union and the International Monetary Fund shows signs of running out of steam.
Worse still, the EU-IMF remedy has brought inflation and unemployment levels unseen in a decade to accompany an output contraction of 4.5 percent last year.
Under the terms of its debt rescue last year, Greece is obliged to start raising its own money in 2012 and reduce its dependency on last year's bailout loan of 110 billion euros from the EU and the International Monetary Fund.
At current interest rates, this looks highly unlikely.
On Friday, Greek 10-year bond yields hit 13.83 percent, up from 13.156 percent the previous day, as rumours spread of a possible debt restructure that could force bondholders to accept either lengthened repayment periods or an outright reduction in their loans.
The run was fuelled by an apparent suggestion by Germany's finance minister to Die Welt daily that Greece may have to restructure its debt if the IMF, the European Central Bank and the European Commission determined in a June report that it is unable to cope with repayments.
Finance Minister Wolfgang Schaeuble later insisted that his remark that "further steps" would have to be taken in such a case had been wrongly interpreted by English-language media.
But in another interview with Bloomberg, Germany's deputy foreign minister Werner Hoyer reasoned that a Greek debt restructuring "would not be a disaster" and that Berlin would support a voluntary effort to ease Athens' payment terms.
Despite progress made by Greece so far on reducing its soaring deficit, state revenue is off-target and credit rating agencies have taken turns in demoting Greek sovereign debt to below junk status.
The markets remain unconvinced because of the sheer size of Greece's debt, which is expected to climb to 152 percent of output in 2011 and to 157 percent next year, says economist George Pagoulatos.
"The debt is keeping Greece from convincing the markets which remain very hostile," notes the University of Athens economics professor.
Confidence in Greece's efforts and the viability of its recovery is not helped by confusion on the exact size of the 2010 deficit, until recently estimated at 9.4 percent but bound to rise because of the recession.
The government has its work cut out after squeezing what it could from wage and pension cuts last year, argues Angelos Tsakanikas, head of studies at the Institute for Economic and Industrial Research (IOVE).
"Last year's wage cuts were horizontal but now surgical measures are called for, which is a more difficult task," he told AFP.
"This entails merging loss-making public entities, privatisations and freeing up markets and services to improve competition," Tsakanikas said.
Finding itself in the same boat as Greece, and with Ireland and Portugal also clamouring for help, the eurozone has also repeatedly denied that a restructuring of Greek debt is an option.
"All these rumours and speculations concerning a restructuring of the Greek debt are totally unfounded," Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of eurozone finance ministers, told reporters in Washington.
"This is not even an option," he added.
"Markets are wrong when they are considering that the programmes under way and the programmes being negotiated are insufficiently solid," he said.
To help out, Greece's eurozone partners last month agreed to cut the cost for its EU-IMF bailout package by a full percentage point and extend its repayment to seven and a half years from three years.
"The situation is still critical and tough times lie ahead, but Greece may be able to return to markets towards the end of 2012," Tsakanikas said.
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