Greek Prime Minister George Papandreou yesterday ruled out any restructuring of the country’s huge national debt, warning it would be “catastrophic for the economy”.
“The logic of restructuring the debt would be catastrophic for the economy, for our credibility, for our future,” Papandreou told a press conference in Thessaloniki where on Saturday he had sketched out his economic priorities.
If debt payments were suspended, he said, Greece “would head towards a potential and probable collapse of the banking system and the loss of Greek families’ property, (which) would be a tragedy,” he added.
Greece averted default on its debt in May when it agreed to unprecedented austerity cuts in pensions, public sector pay and a sales tax hike in return for a €110-billion rescue package from the European Union and International Monetary Fund.
The measures have triggered waves of strikes and protests, including one in which three people died when the bank they worked in was firebombed by youths participating in a demonstration in May.
On Saturday, 20,000 people marched against the austerity drive in Thessaloniki, Greece’s second city, hours before Papandreou defended the measures in a major speech.
Burdened with debts close to €300 billion, the Greek government had little choice but to turn to the EU and IMF after a credit rating downgrade triggered a collapse of investor confidence that drove up Greece’s cost of borrowing on the bond market.
Even with the EU-IMF bailout, some economists continue to warn that Greece could in the coming years be forced to restructure its debts, which would likely cause considerable economic damage in the country but also in the broader eurozone.
Mr Papandreou stressed that his Socialist government had strived since coming to power 11 months ago “to avoid bankruptcy”.
“We have done what we decided to do in order not to get into the logic of bankruptcy,” he said.
Asked if new austerity measures were in store, he said that “as long as the economy does well, no new measures are needed,” ruling out an increase on heating fuel that the press has recently speculated on.
In the speech, Mr Papandreou expressed confidence that his government would meet its targeted 40 per cent budget reduction by the end of the year, and promoted bank restructuring measures, saying the country needed “a strong public foundation”.
Mr Papandreou said he was ready to forge ahead with a reduction of the defence budget, one of the largest in the EU, but added that “this depends on Turkey”, referring to Greece’s sometimes tense relationship with its neighbour.
“If there is the will in Turkey (to reduce defence spending), and I hope it will be expressed, we could talk about a significant cut (in the defence budget),” he said.
On public sector reform, a real headache for the government, the Prime Minister ruled out any lay-offs among civil servants.
Mr Papandreou also reiterated his commitment to fighting corruption, particularly in healthcare. “Taking an envelope (containing money) is fraud,” he said, referring to the tradition of doctors receiving kick-backs from patients.
Today, IMF, EU and ECB officials are due in Athens for a check-up on the government’s success in meeting the conditions for the international bailout so that a third tranche of loans worth nine billion euros can be made.
Last week the EU and the IMF gave the go-ahead for the second instalment of loans also worth €9 billion and which the government is due to receive by the end of the month.