Greece Rejects Bailout Speculation as EU Officials Arrive

Greece Rejects Bailout Speculation as EU Officials Arrive

Jan. 6 (Bloomberg) -- Greece rejected speculation that it will need a bailout to tackle the European Union’s biggest budget deficit as officials fly in from Brussels to scrutinize tax and spending plans.

“We don’t expect to be bailed out by anybody as, I think, is perfectly clear we’re doing what needs to be done to bring the deficit down and control the public debt,” Finance Minister George Papaconstantinou said in an interview with Bloomberg Television today.

Papaconstantinou is trying to buttress confidence in Greece’s fiscal plans after the ballooning budget deficit last month triggered a sell-off of the country’s bonds. European Central Bank Executive Board member Juergen Stark earlier spooked some investors about Greece’s vulnerability to default when Il Sole newspaper quoted him as saying the rest of the EU won’t rescue the country if its fiscal position worsens.

“Frankly we don’t need that clarification,” said Papaconstantinou. “There is no Plan B. Greece will do what it takes on its own devices. There will be no need for any outside help.”

The euro dropped as much as 0.5 percent to $1.4282 after Stark’s remarks before recouping its losses. The yield on Greece’s 10-year government bond rose 4 basis points to 5.672 percent.

Credibility

Greece’s deficit-cutting strategy faces a credibility test today when EU officials arrive in Athens for a three-day fact- finding mission. Greece has pledged to cut its deficit to 8.7 percent of gross domestic product this year from 12.7 percent in 2009 and push it below the EU’s 3 percent limit by 2012.

The Brussels-based European Commission won’t make its views public before Greece releases detailed plans later this month, EU spokeswoman Amelia Torres said. The ECB will be represented on the trip.

Papaconstantinou said today there are “absolutely” no discussions under way with other European governments about crafting a rescue package for Greece.

Greece’s deficit has prompted speculation from some investors that the rest of the EU would save the country from default if such a move were necessary. German Chancellor Angela Merkel fanned such talk when she said Dec. 10 that Europe has a “responsibility” to help Greece overcome its crisis, though she stopped short of laying out a course of action.

Delusion?

The ECB’s Stark today indicated that those remarks shouldn’t be overinterpreted.

“The markets are deluding themselves when they think at a certain point the other member states will put their hands on their wallets to save Greece,” Il Sole cited him as saying.

Papaconstantinou acknowledged that financial markets will be looking at Greece “very carefully over the next few months.”

“Hopefully what they will be seeing will be reassuring them that indeed we are moving in the right direction and they should continue funding our large debt,” he said.

Prime Minister George Papandreou’s government, elected in October on a platform of higher wages and spending, was stung into acting on the deficit by a bond-market selloff and downgrades from the three main rating companies. In the two months to Dec. 21, the yield on 10-year Greek bonds surged 1.33 percentage points to 5.96 percent.

Crackdown

The government is now relying on one-time taxes, a crackdown on tax evasion and cuts in civil servant bonuses to pare the deficit, which has bought Papandreou some time with bond investors. Since Greece’s budget was passed on Dec. 24, the yield on 10-year bonds has slipped 5 basis points.

Greece’s credit rating was cut last month by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. Greece sold bonds directly to selected investors last month and may conduct another private placement this month, Spyros Papanicolaou, head of the Public Debt Management Agency, said yesterday.

“There is a lot of interest from foreign banks” for such placements, Papaconstantinou said.

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