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Economist Intelligence Unit: 35 percent haircut on the Greek debt in 2012

09 December 2010 / 15:12:41  GRReporter
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Greece will be forced to resort to 35-percent haircut on its debt in 2012, said the analyst of Economist Intelligence Unit Megan Greene. She also said that she expects social protests, inability to pursue reforms and fiscal discipline. Return to the markets in 2013 will be difficult. The burden of payments should be shared with someone else. She recalled that the country has the highest debt as a percentage of GDP than any other EU member country and it will continue to grow in the coming years.

Paul Thomsen, Deputy Director for Europe and head of the IMF mission to Greece, said in turn they were constantly criticized for not having undertaken any magical measures to stimulate economic growth so that Greece does not go through this period of recession and unemployment. This is an illusion. There is no such path. He stressed that the program is followed and we are moving on schedule. But there are signs of problems that must be taken into account. We are at a crossroads. We need more reforms. Paul Thomsen recalled that this year the deficit reached 9.5 percent of GDP, i.e. 6 percent reduction in a period when the economy shrank by 4.5 percent. The government decided the next year’s reduction to reach 7.5 percent of GDP. This is extremely ambitious goal in all international standards. In his opinion the upcoming health care reforms and the liberalization of the labour market are inevitable and difficult, but the good news is that the Greek government is determined to implement them.

Greece has no alternative to reforms – this was the common opinion of the participants in the conference Keeping the Euro Alive – Greece’s Economic Recovery, organized by the Economist magazine. Financial experts, bankers, businessmen, politicians and journalists took part in the forum, which takes place in the most difficult times for the common European currency. There are two questions troubling the analysts: Can the euro survive given that there is such a serious imbalance between the countries in the Euro zone and Can the euro survive without political union behind. Immediately after that the next logical question is - if the Euro zone collapses, what will be the consequences for member states. For now the crisis is withheld due to the alliance between Berlin and Paris and the IMF, but how long can this continue? These were the focus topics of the discussions participated by key figures in the financial life of the world.

Commissioner Olli Rehn, Commissioner for Financial Affairs of the European Union, noted that the European Monetary Union was projected in the 1990s, it was implemented during 2000 and it should be reformed now in 2010. Disparities within the EU have increased throughout this time. He admitted that the financial stability of the euro is going through difficult times. Greece is not alone in facing these challenges. Ireland also requested financial support and undertook a program of fiscal stabilization and consolidation. The European Union as a whole requires measures to reform the economic governance but a rigorous and general determination is necessary for their success. Olli Rehn stressed that imports in Greece consistently exceed exports, the Greek competitiveness dropped by 20-30 per cent in the last 10 years. That is why the export of Greek goods and services is constantly deteriorating. But Greece is not the only country experiencing such problems. Therefore, the finance ministers of the Euro zone countries have adopted a permanent mechanism for fiscal stabilization.

The Commissioner for Financial Affairs proposed penalties for the countries that do not comply with the economical and financial rules of the Euro zone, but they should be imposed before the countries enter into crisis and have a kind of deterrent effect. He also said that the Greek reform program has no alternative. The second mission confirmed the impressive fiscal consolidation in the country. Financial stability is restored. The next step is to make the labour market more flexible and to support entrepreneurship. A solution to the problem of tax evasion should be found - not just to fill the treasury, but also to restore social justice. He stressed that the European Union recognizes the efforts of Greece and will therefore defer its payments of the financial support of 110 billion euros.

The Financial Minister George Papakonstantinou in turn recognized that it was known still in the beginning that the system established in Greece would not hold and that one day it will happen what happened. The reaction of the Euro zone is fully understandable. Greece acted beyond the rules of the union and found itself in front of the closed doors of the international markets. So, the country faced the unprecedented financial support of 110 billion euros from the European Union and the IMF.

Tags: Economist Intelligence UnitHaircutGreek debtEconomic crisisMarketsEuro zone
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