UPDATE 2-Greece says debt sustainable, plans bonds in 2012
Wed Apr 20, 2011 11:26am EDT
*
Greece rules out restructuring
* Still plans return to debt markets by early 2012
* Pins hopes on
Portugal bailout, domestic reforms
* Reuters poll sees restructuring likely within 2 years
(Adds details, quotes, analyst comment)
By Harry Papachristou
ATHENS, April 20 (Reuters) - Greece said on Wednesday it still planned to issue bonds again by early 2012, betting that a Portuguese bailout this summer and reforms at home will calm markets that are increasingly factoring in a debt restructuring.
The cost of insuring Greek five-year government paper shot to a record high on Wednesday, topping Iceland's premium in 2008 when its financial system imploded as worries that Athens could end up forcing haircuts, or losses, on its debt holders gathered momentum.
But Finance Minister George Papaconstantinou said he considered Greece's debt -- expected to hit about 160 percent of GDP in 2012 -- "totally sustainable", and that a restructuring was out of the question.
"We believe it (a restructuring) harbours extreme dangers for the Greek economy, the banking system, businesses and households," he told reporters.
His refusal to consider a cutting on deal on repayments chimed in with recent comments by
euro zone policymakers but contrasted sharply with latest market expectations.
In a Reuters poll published on Wednesday, 46 of 55 economists said they expected Greece would have to restructure in the next two years, most likely by extending maturities on its debt. [ID:nLDE73J1N8]
Papaconstantinou said the market mood might change after the summer, once Portugal clinches its bailout deal with the EU and IMF and Greek reforms gather pace.
Greece still assumes it will not need to borrow money from the EU's rescue fund, the EFSF, to cover a 27 billion euro gap in its finances next year, he said.
A plan to raise 15 billion euros from privatisations by the end of 2013 to pay down debt was feasible, and "our intention remains to go to markets as soon as possible and by early 2012 at the latest".
The country will also unveil in detail next month how it will gradually reduce its deficit from about 15 percent of GDP in 2009 to 1 percent of GDP in 2015, he added.
2012 ISSUANACE 'A NON-STARTER'
European Central Bank ratesetters Juergen Stark and Lorenzo Bini-Smaghi both recently warned against a Greek restructuring, saying it would hammer the country's banking system and damage Europe's credibility.
French Finance Minister Christine Lagarde also dismissed that option in comments to parliament on Tuesday. But rumours about an imminent restructuring pushed Greek bank stocks .FTATBNK 4.6 percent lower after Papaconstantinou's comments on Wednesday [ID:nATH006034], reflecting widespread scepticism in the market.
"The government's assessment is very optimistic," said Ken Wattret, economist at BNP Paribas. "The issue of going to the market as soon as 2012 looks like a non-starter."
He said it was unlikely that market sentiment will improve enough by next year to allow Greek borrowing costs to fall to sustainable levels.
"A more realistic assessment is that the EFSF will have to be used to cover Greece's financing gap."
.
