By G Politis
An unannounced meeting in Luxembourg late last week involving G20 eurozone finance ministers, top commission and eurozone officials, and Greece’s finance minister — coupled with a jolting media report that Athens is pondering an exit from the single currency — caused nerves to fray in international markets.
While the worst for these markets was avoided due to the ensuing weekend, the meeting nevertheless bumped the prospect of restructuring Greece’s 340-plus billion euros of external debt into the limelight again, regardless of the fact that the eurozone exit scenario was quickly and angrily dismissed in Athens and other European capitals.
“Press reports on a possible exit of Greece from the euro, based on unnamed sources, are simply wrong and intentionally misleading,” EU Commissioner Olli Rehn’s spokesman, Amadeu Altafaj Tardio, stressed on Saturday (May 7th).
Greek Finance Minister George Papaconstantinou joined the chorus, underlining on Monday that “no, that [Eurozone exit] is impossible”. Hours later a spokesman for German Chancellor Angela Merkel told a press conference in Berlin that a euro departure for Greece “never has been and isn’t on the agenda”.
Whereas the eurozone exit scenario, carried by the online edition of Der Spiegel on Friday, was quickly eviscerated, continuing speculation of a possible debt restructuring — including extension of the loan repayment period, renegotiation of interest rates, and the ominous “haircut” of state bonds — simmered in the international press. Papaconstantinou himself confidentially told Greek reporters after a press briefing “we are negotiating a new loan with new conditions.”
Asked about Greece’s possible eurozone exit, Megan Greene, an economist on Western Europe for the Economist Intelligence Unit, was succinct: “that’s rubbish.”
“It would be such a complete disaster for Greece,” she told SETimes from London, noting that the meeting in Luxembourg probably focused on Greece’s debt restructuring “without [ministers] having to posture for electorates. But it completely failed [in that aspect]. In fact, it was rather shambolic.”
As for other potential scenarios short of outright Eurozone exit, Greene predicted that repayment deadlines will mostly likely be extended before 2013. On a gloomier note, however, she also forecasts that the country will not return to lending markets in 2012, but instead proceed with roughly a 45% “haircut” — the discount applied to bonds — on Greek debt. “I am below consensus, because Greek banks and insurances are highly exposed [in this area].”
“However, you would prefer to restructure within the eurozone and not outside,” she cautioned.
Back in Athens, Miranda Xafa, an IMF alternate executive director for Greece, was blunt in her comments Monday.
“The [EC-ECB-IMF] memorandum [for the 110 billion-euro bailout] would be a solution, if we implemented it,” she told SETimes.
Moreover, she concurred with the consensus that Greece would not return to the markets in the near future for funding.
Xafa directly called for layoffs in Greece’s voluminous public sector, as state spending cannot be effectively reduced via only horizontal cuts, given that 75% of spending in the public sector goes to wages and pensions.
She was unapologetic in her hammering of the country’s public sector, saying that the transfer of surplus civil servants and state-run enterprise employees is now taking place instead of redundancies. “Yet no one cared when 250,000 people lost their job last year in the private sector,” she said.