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Greece’s Papandreou: EU safety net a backup option
The still vaguely worded rescue plan agreed on in Brussels on March 25 would provide Greece with loans from other eurozone governments and the International Monetary Fund to help deal with its rising cost of borrowing. “We battled -- and we won the battle -- for a European support mechanism to be put in place... The question is whether this mechanism will convince the markets as a [sort of] gun on the table” Papandreou is quoted as saying in excerpts of an interview for publish Saturday in To Vima. “If it does not, it is an existing mechanism which we can use. This wasn’t, and [still] isn’t our first option. But it is there, if we need it, as a safety net.”
Greek media reported that Eurozone finance ministers and central bank representatives will teleconference early Sunday afternoon to specify borrowing terms for Greece. The reports said the aim was to make the plan more specific before markets open Monday.
The Greek government hopes that the existence of the plan will convince markets that Europe is prepared to rescue Greece and that this will lead to lower borrowing rates for the heavily indebted country.
Papandreou made it clear that Greece wanted a European Monetary Fund that would help the country borrow at low rates. He added that the European Union is currently ”experimenting” with the safety net and expressed the hope that a more “effective” mechanism will eventually be put in place. “We [the government and other European socialists] had made other proposals that resemble a kind of European Monetary Fund that would guarantee low-interest loans from the markets... We must look for a mechanism that will possibly more effective,” he said.
“Obviously, Europe is experimenting this time ... This is the negative aspect. On the positive side, Greece can play a very important role to open up this prospect [for a better mechanism].
While lauding the March 25 agreement as a “significant big step toward greater European solidarity and deeper cooperation,” Papandreou added that the European Union “has lost part of its momentum” and that “sometimes, there is excessive faith that markets are operating properly.”
The Greek premier said it is Greece’s responsibility to get out of its present crisis and emphasized that Greece’s place is in the eurozone. “Any other scenario is frivolous,” he said.
Greece’s fiscal woes -- a 2009 budget deficit of 12.7 percent of economic output and a debt level expected to reach 120 percent in 2010 -- coupled with the country’s need to issue 11.8 billion euros of new debt in May alone and 32 billion euros by the end of the year, partly to pay back expiring bond issues, has raised the specter of default.
This has prompted markets to raise the interest rate for Greek bonds to record levels for a eurozone member. This week, the spread between the rate of Greece’s 10-year benchmark bond and Germany’s 10-year issue reached a high of 4.8 percent.
Greece is to auction 1.2 billion euros worth of 6-and 12-month Treasury bills on Tuesday. At the last sale, the yield was 1.38 percent for 6-month and 2.20 percent for 12-month bills.
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