The Greek finance minister is supposed to have set his government a Herculean task of fiscal adjustment — to get his country out of its debt crisis, and away from the risk of default.
So what’s the following comment all about, George Papaconstantinou?
Especially given the massively raised market premiums on your country’s debt.
As the New York Times reported on Saturday (our emphasis):
Greece’s finance minister dismissed on Saturday speculation that his government would be forced to introduce tougher austerity measures in return for securing a 45 billion euro loan package — even as he indicated that the country’s deficit had climbed higher than initially estimated…
“There has been absolutely no one who has said to us that there are additional measures that are necessary in 2010,” he said at a news conference in Madrid. “We have opened up every reform agenda that we could possibly open.”
‘No one’ being, of course, not the International Monetary Fund and European officials who are due to meet in Athens this week to discuss contingency loans for Greek debt.
It quite frankly beggars belief that more cuts would be off the table for the IMF, given the international lender stuck very fiercely to budget reduction in its recent Latvian programme.
At any rate, they’re not off the table for Europe. Eurogroup head Jean-Claude Juncker said as much in an interview on Monday with the Greek-language news site Euro2day (translation and emphasis ours):
The measures for 2010 are quite ambitious and demonstrate reliability. In discussions with the Troika [the IMF, European Commission and European Central Bank], the Greek package will be discussed, including possible new measures. But this is not a problem for tomorrow morning, but throughout the process.
So why did Papaconstantinou deny the prospect of further cuts in the first place? And what does it tell us about the risk of a Greek default?
In the first instance — it appears to have told markets to freak out. Greece 5-year credit default swaps, according to Dow Jones, widened by almost 30 basis points to 463bps on Monday.
As for the former question — Greek brinkmanship is alive and well, clearly.
After all, Greece has an incentive to wring concessions out of the IMF. As BNY Mellon noted in its Monday briefing, quite a few Greek voters hate the Fund:
According to the Sunday edition of the Eleftheros Typos newspaper, 48% of Greeks said they felt anger when they heard that the government had asked to begin technical discussions on an aid deal with the IMF and the European Union. Another 28% said they felt fear when they first heard the news, while 92% said they expect the IMF to ask for further austerity measures. Some 65% said their lives would be negatively affected by such a bailout, and 52% said they would regard an IMF rescue as a failure of the government. However, only 5% of respondents felt the current government is at fault, while 23% blamed the preceding New Democracy government. 58% said all past governments of both major parties were to blame. Worryingly though the poll showed that 39% of Greeks judged the current government’s efforts so far as “average,” while only 25% judged them as “good.”
In short, the debt markets are now in the middle of a two-level game, as the current government is clearly interested in activating the contingency loan, but not without beating the populist drum during the pain-staking technical discussions around it.
Risky, isn’t it? Too much Greek defiance during what is now a key rollover period, and markets raise premiums too high, too soon, before the loan is ready. That would make debt restructuring or default increasingly likely — but orderly versions thereof would take even longer to work out.
Leaving us with a disorderly default, however distant that seems right now. Oh dear.
We did say it wasn’t a particularly Philhellenic Fund.
Greece’s bailout only delays the inevitable – Wolfgang Münchau / FT
How to default – Haraldo, Long Room
From the annals of international Greek debt management… – FT Alphaville