Greece can meet the demands of international lenders and avoid defaulting on loans without needing to impose more austerity measures, prime minister George Papandreou said today.
Despite revenues lagging targets, the government is on track to meet deficit-cutting goals and its efforts will reassure international markets, which were rocked by the Greek debt crisis earlier this year, he told a news conference at an annual trade fair in the northern city of Thessaloniki.
"Debt restructuring would be catastrophic for the economy, our credibility and our future," he said. "We would be talking about the collapse of our banking system, it would be a tragedy for households. We are not even discussing it."
Greece must cut its budget deficit to 8.1 per cent of GDP this year from 13.6 per cent of GDP in 2009 to meet the terms of a €110-billion IMF/EU bailout.
But tough measures - taxes have been hiked while state sector salaries and pensions have been cut - are hurting state revenues and economic activity, plunging Greece into a deeper recession. GDP is seen shrinking by 4 percent in 2010.
Mr Papandreou said budget revenues were indeed weak, with a slippage of nearly €1.5 billion, but was confident end-year targets would be met without additional belt-tightening.
"With the pace we are advancing and with the measures we have already taken, we are confident that we will reach the goal we have set for 2010, and this will be quite an accomplishment."
Markets, still nervous about Greece, will eventually be convinced by its efforts and the currently prohibitive borrowing costs it faces will start to decline, he added.
"There is obviously fear in the markets," he said. "We are showing that we're stronger and much more capable to deal with these problems. Confidence is growing and I hope at some point, sooner rather than later, that it will have a strong impact on markets and will bring down the spreads."
The 10-year yield spread between Greek government bonds and benchmark German bunds was close to 10 percentage points, about the same as at the height of the debt crisis in May, indicating markets were yet to be convinced Greece was out of the woods.
Among concerns is a restive public that has taken to the streets, with protests often turning violent.
Mr Papandreou was speaking a day after delivering his main annual economic address in Thessaloniki, where about 20,000 demonstrators showed opposition to his policies.
He said he understood people's problems and offered some relief to business by bringing forward planned cuts in retained earnings tax to 20 from 24 per cent in 2011 instead of in 2014.
"Despite his efforts to appease us, the prime minister has made us even more worried with his confusion, contradictions and inaccuracies," said main conservative opposition New Democracy party spokesman Panos Panagiotopoulos.
Mr Papandreou also announced that former ECB vice president Lucas Papademos would be his unpaid economic policy adviser and applauded a move by the country's largest bank, National, to boost its capital.
He encouraged, once again, consolidation in Greece's banking sector, which has been increasingly reliant on ECB funding and vowed to keep up the fight against tax evasion.
"Despite all the Cassandras, we have shown we are a credible nation. Greek people have decided to make changes," he said.
Reuters