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02/11
Greece Joins Italy in Objecting to Proposed EU Debt-Reduction Benchmarks
Greek Finance Minister George Papaconstantinou said in a statement, Greece “remains absolutely committed to reducing the public debt – including subscribing to annual reduction targets.”
Greece joined Italy in objecting to annual numerical debt-reduction targets in a fresh challenge to the German-led drive for tougher economic safeguards to underpin the euro.
Greece, the first deficit-riddled euro country to fall back on financial aid, says the proposed rule would force it to make impossibly large cuts once its support package runs out in 2013, according to a draft of European Union legislation.
“All member states except two already accepted the proposal,” said an EU briefing note obtained by Bloomberg News before next week’s debate among finance ministers. “Italy and Greece have a reserve on the numerical benchmark.”
Greece or Italy alone could veto the rule, undercutting the tougher enforcement demanded by Germany as a condition for beefing up the 750 billion-euro ($1 trillion) rescue fund for distressed states.
The rule, proposed by the European Commission, would require countries with debt above the EU ceiling of 60 percent of gross domestic product to make annual cuts equal to 1/20th of the excess, or to face sanctions.
The yield spread between Greek 10-year bonds and 10-year German bunds, a measure of risk, widened 8 basis points to 819 basis points today. The measure reached an all-time high of 974 basis points on Jan. 11.
Greece, now benefiting from an EU-led 110 billion-euro aid program, overtook Italy as Europe’s most indebted country in 2007. Its debt of 140.2 percent of GDP in 2010 is set to balloon to 156 percent of GDP in 2012, the EU forecasts.
Repayment Load
Starting at that level, Greece would have to pay off the debt at an annual rate of 5 percentage points, a pace that economically healthier Belgium couldn’t manage during more than a decade of debt reduction until 2007.
The bailout terms require Greece to reduce its deficit from 15.4 percent of GDP in 2009 to less than 3 percent in 2014. That’s about 12 percent of GDP through to 2015, according to a December 2010 report by the International Monetary Fund.
Greece “remains absolutely committed to reducing the public debt — including subscribing to annual reduction targets,” said a statement today by Greek Finance Minister George Papaconstantinou.
European finance ministers will square off over the debt rules at a Feb. 14-15 meeting, seeking to ready a comprehensive anti-crisis package in time for a March 11 leaders summit.