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Reuters: Chances increase for the deferral of the Greek foreign debt

22 May 2010 / 09:05:38  GRReporter
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The chances of Greece increase to defer the payments ot its foreign creditors, shows a research of the agency Reuters. In the research took part 36 economists, 33 percent of whom believe that in the next five years Greece will stop paying its foreign debt. The majority of them believe that the credibility of the European Central Bank was injured after the decision of the institution to began buying government bonds of the troubled countries of the eurozone.
    In April, the agency conducted a similar survey before the announcement of the financial assistance for Greece by the International Monetary Fund and the European Commission and before the package of 1 trillion dollars for the stabilizing of the common European currency. At that time only 30 percent of economists have thought there is a real possibility of deferring the Greek debt.
    In an article for the Financial Times the Nobel laureate Nuriel Rubini said that financial assistance from the IMF and EU in its current form will only deepen the Greek crisis and suggests that the European institutions should switch to plan B - deferral of the payments to foreign creditors, a program of rehabilitation of the public finances which should cover also the other south European countries, to increase the financial aid for Greece to cut the interest rates, to stimulate the consumption in countries with strong economies such as Germany and to reform the institutions in the eurozone. According to Rubini the European Central Bank must be prepared to finance the Greek banks in the event of a mass withdrawal of their investment and must exercise flexible fiscal policy that would weaken the euro, but would improve the competitiveness of the countries from the eurozone.
    Fines and penalties for the undisciplined eurozone countries have requested the finance ministers of the 27 European Union countries who gathered in Brussels at a meeting of the so-called rapid reaction group. The group discussed some urgent proposals for the strengthening of the public finances the old continent such as state budgets to be approved by Brussels before being voted by the national parliaments, to be imposed financial fines and political penalties to the undisciplined countries which consistently violate the Maastricht criteria for membership in the eurozone, where it is necessary to proceed with a controlled bankruptcy of the troubled countries, and also to provide for a procedure for the exiting of the eurozone by countries which can not meet the standards within it.
    As it could have been expected, Greece objected to most of these proposals. The Greek Finance Minister George Papakonstantinou urged for realism in the requirements for the troubled countries. He strongly opposed the German proposal for a controlled bankruptcy of the troubled countries. "The theory of emergency exit is a theory of punishment. It will further shake the already sensitive markets and will send them the wrong signal because it would encourage speculation", told journalists the number one financier of Athens. On the contrary, George Papakonstantinou supported the old idea of Prime Minister George Papandreou for the issuing of European bonds that will turn a part of the Greek foreign debt in common European debt.
    " The moment of fines is approaching for countries with large debts of over 60 per cent of the GDP such as Greece," says the chief economist of Eurobank EFG Gikas Hardouvelis in an interview with Radio Theme. According to the famous expert these fines will be collected in a fund and will be paid annually during the high debt. "I read about the proposal for a controlled bankruptcy. For us it would be anathema. Europe came to protect us from the crisis which we live in. Now it is watching us and waiting for us to reduce expenses in the public sector and to create a new state," said Gikas Harduvelis in conclusion.

Tags: Greek foreign debt deferral Reuters controlled bankruptcy markets
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