FRANKFURT (MNI) – It is a good sign that foreign banks have bought
into the recent T-bill auction but the real test for Greece still lies
ahead, Greek Finance Minister George Papaconstantinou told CNBC on
Thursday.

“The real test will be some time next year when we come to the
market with normal syndicated deals,” Papaconstantinou said.

In a separate interview with the Financial Times, Papaconstantinou
strongly ruled out a default or restructuring of Greek debt, which
markets have been fearing.

“Restructuring [of Greek debt] is not going to happen. There are
much broader implications for the Eurozone should Greece have to
restructure its debt,” he said.

“People fail to see the costs to both Greece and the Eurozone of a
restructuring: the cost to its citizens, the cost to its access to
markets. If Greece restructures, why on earth would people invest in
other peripheral economies? It would be a fundamental break to the unity
of the Eurozone,” Papaconstantinou said.

He conceded in the CNBC interview that the interest Greece has to
pay on short-term paper, which it still sells in the open market, is at
elevated levels. But he noted that there has been a lot of stress across
the Eurozone’s periphery in general over the past weeks.

“What is important to us is that it is still below the 5%
threshold, which is the price at which we borrow from the International
Monetary Fund and the European Union,” Papaconstantinou said.

He also observed that there is an increasing sense of optimism on
the outlook for Greece. “We see a movement from a negative outlook on
Greece to a more neutral and sometime positive” outlook as analysts
realize that reforms are being put into place and the government’s
targets are within reach.

But of course markets are still waiting to see whether Greece
continues to meet or exceed both austerity and growth targets,
Papaconstantinou said.

“The most difficult issue for Greece is credibility. Gaining that
with markets and investors is difficult, but we are getting there,” he
told the Financial Times. “We have a two-year window to get things
done,” he added.

“I can understand why investors are saying: what happens [when
Greece's E110bn loan bail-out runs out in 2013]?,” Papaconstantinou
said. “The answer is: primary surplus plus growth. The big problem for
Greece is growth, but the reforms we have taken tackle that because the
supply shock to the economy increases its growth potential.”

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.

–Frankfurt newsroom, +49-69-720142; jtreeck@marketnews.com

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