The International Monetary Fund’s (IMF) chief official responsible for Greece has warned the debt-stricken country must take even more austerity measures in order to reduce its massive budget deficit.
Speaking at a conference in Athens, Poul Thomsen that under the current program, the Greek government will fail to even get the deficit figure below 10 percent of GDP this year. (Under terms of the 110-billion euro European Union/IMF bailout Greece received last year, it is required to cut its budget deficit to 7.6 percent of GDP this year).
We are in a situation where if we do not get this acceleration of structural reforms, the [budget] deficit will get entrenched at where it is now, around 10 percent, Thomsen said.
It's impossible to deal with a deficit of 15.5 percent of GDP without having a recession. People are dreaming if they think you can do this kind of adjustment without having a recession.
Thomsen added: The [bailout] program will not remain on track without a determined reinvigoration of structural reforms in the coming months. Unless we see this invigoration, I think the program will run off track.
Meanwhile, the Greek government has appointed banks to explore possibilities of selling some state assets – including the state gaming monopoly OPAP and the racetrack operator ODIE.
Athens seeks to raise about 50-billion euros through the disposition of state-controlled properties and assets.
We will frontload this process by announcing the reduction or elimination of the stake which the state owns in listed companies in telecoms, ports, water management, as well as electricity and gaming, said Greece’s Prime Minister George Papandreou
However, a new wrinkle has been introduced into the Greek debt saga.
Juergen Stark, the chief economist of The European Central Bank (ECB) has charged that Greece’s financial recovery is being derailed by vested interests in Britain and the United States.
Speaking at a conference in Greece, Stark said he believes the nation’s debt sustainability is insured if Athens fully complies with its austerity program.
However, Stark added that some of the market hostility towards Greece is unjustified and comes primarily from the US and UK.
“This is a discussion triggered from London and New York,” he charged.
“I don't know what is behind it -- vested interests, people topping their books and so on. So it's more complicated than just [saying] what markets expect.
Indeed, amidst fears that Greece will default, it is virtually locked out of the bond markets.
Stark further warned that a debt restructuring for Greece is out of the question.
Debt restructuring would wipe out part or all capital of Greek banks, he said.
So it would be a recipe for catastrophe. Greece is solvent. This is an important message.
Another prominent ECB official concurred with Stark.
Time has been wasted these past months in the search for a way out, for an easy solution, like restructuring the debt, said Lorenzo Bini Smaghi, adding that if Athens failed to repay its debts, that would have an immediate impact on the banking system.