German Magazine: Greece Threatening to Leave Eurozone (NYT 8/5/11)
Prime Minister George Papandreou of Greece on Saturday attacked “rumor mongering” and speculation after a German magazine reported that Athens was threatening to leave the euro zone in order to bargain for easier terms on its huge debt obligations.
But even as Greece and the European Union denied the reports and sought to calm nervous markets, other European officials acknowledged that the country needed its loans adjusted after new figures showed a deep recession and higher-than-forecast fiscal debt.
Instead of a projected budget deficit of 9.4 percent of gross domestic product in 2010, the Greek deficit was 10.5 percent, despite some harsh austerity measures, in part because the economy shrank faster than expected.
The new wave of concern about Greece will reverberate, and will probably complicate coalition negotiations for a new government in Finland, and affect the Portuguese election next month.
The anxiety is another sign that the European Union’s efforts to save the euro by propping up countries that can no longer borrow freely from the market are hardly finished. Greece, Ireland and now Portugal have gone to the union for large loans to protect them from investors demanding high yields, to allow them to pay interest on their debts and to create time for them to restructure their economies. But skeptics believe that in the end, Greece and Ireland will have to restructure their debt — paying back less than face value.
Even after the austerity and adjustment program, Greece will face loans of more than 150 percent of gross domestic product, a debt mountain that many think is unsustainable, even with better tax collection and economic growth.
Mr. Papandreou, European finance ministers and others on Saturday denied any thought of restructuring Greece’s debt, let alone having Greece exit the euro, which would allow it to devalue. And quitting the euro is considered enormously complicated and even self-defeating by numerous economists, since Greek debt is denominated in euros.
“I call on everyone, inside and outside Greece, in the E.U. in particular, to leave Greece in peace to do its job,” Mr. Papandreou said on Saturday. “Greece is doing its job.”
Officials of the European Commission, the European Central Bank and the International Monetary Fund are in Greece assessing the state of the economy to report to finance ministers meeting in Brussels on May 16 and 17, said a spokesman for the economic affairs commissioner, Olli Rehn.
The spokesman, Amadeu Altafaj, denied that a meeting Friday evening of some key finance ministers in Luxembourg was any sort of “ ‘crisis meeting on Greece,’ as presented in some press reports,” in particular Spiegel Online. The meeting, he said, was “informal,” but Greece was clearly a major topic of discussion and Greece’s finance minister, George Papaconstantinou, was asked to attend. He repeated that “debt restructuring is not an option on the table,” given that “its effects could be extremely negative for the country and for the euro area as a whole.”
Afterward, Jean-Claude Juncker of Luxembourg, who leads the group of euro zone finance ministers, said the Greek program “does need a further adjustment” that would be discussed in mid-May.
What is likely is a kind of soft restructuring, in which Greece will be given more time to pay its loans. Major bondholders — which include French, German and Greek banks, as well as the European Central Bank — could agree to exchange their debt for securities with longer maturities and even a lower interest rate rather than face the possibility of getting back only a percentage of their loans. That would make it less likely that the countries involved have to go to their taxpayers and ask for more money to prop up national banks, which would be deeply unpopular, especially in Germany.
Greece was given a 110 billion euro bailout last year, whose terms were already eased by the European Union in the spring.