PARIS (MNI) – Being effectively locked out of bond markets is not
a sustainable solution for Greece over the long term, but investor
confidence in the country should return once it proves it is serious
about cutting its debt and deficits, Greek Finance Minister George
Papaconstantinou said in an interview published Wednesday evening on the
Web site of the Wall Street Journal.

Greece will be able to finance its needs over the next three years
thanks to a E110 billion emergency loan facility extended by its
Eurozone partners and the International Monetary Fund. But that’s not
good enough, Papaconstantinou told the newspaper.

“Clearly this is not a tenable long-term situation,” the finance
minister acknowledged. But he said Greece’s stiff austerity plan and
reform efforts will sooner or later be recognized by investors and
create new demand in the economy.

“There will soon come a point when early evidence increases and
people say this is an opportunity,” he said. But he declined to predict
when that would happen.

He noted that the government is ahead of schedule in its plan to
cut E12 billion from the budget deficit this year.

Steep spending cuts, lower wages and downsizing in the public
sector, along with higher taxes on a range of goods and services, have
created a tense social climate in Greece, with numerous strikes and
protests in recent months, some of them violent. Papaconstantinou said
he regretted having to take such tough decisions. However, “the
alternative would be a catastrophe,” he said. “The alternative would be
not having this program and the country going bankrupt.”

The massive expenditure cuts have plunged Greece even deeper into
the recession that already prevailed before it undertook the austerity
program in exchange for the IMF and Eurozone loan package.

Despite the breathing room, the country is still up against a
widespread view in financial markets that eventually it will have to
default on its debt, or restructure it significantly with investors
taking a sizeable hit.

The rest of this year should not be too difficult, since Greece’s
funding needs are largely met already. And it only needs to raise E4.8
billion in 2011, according to figures published by the newspaper.

But things start to pile up after that. In 2012, the country must
repay about E49 billion on principal and interest on outstanding bonds,
and 2013 there will be another E36.7 billion in such payments. And in
the years immediately following, it must pay back its loans from the IMF
and Eurozone to the tune of E70 billion per year.

Furthermore, even the Greek government moves aggressively to slash
its annual deficits, the country’s debt is projected to rise steadily —
from about 115% of GDP this year to nearly 150% after the austerity
program has run its course.

Papaconstantinou said Greece could cope with this heavy load in
upcoming years if it is able to regain the confidence of capital markets
on the strength of its deficit cutting efforts.

He noted as promising signs the recent successful capital increase
by a large Greek bank and the fact that Greece is still able to secure
short-term financing in private markets. Papaconstantinou repeated that
the government would issue a so-called “diaspora” bond, appealing to
Greek’s abroad to help finance the country’s restructuring efforts.

Papaconstantinou is on a frenetically paced roadshow this week,
meeting with investors, government officials and senior central bankers
in London, Paris and Frankfurt.

He will meet with France’s Finance Minister Christine Lagarde on
Thursday morning in Paris and with European Central Bank President
Jean-Claude Trichet on Thursday afternoon. He’s slated to give a press
conference Thursday after his meeting with Trichet.

— Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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