Greek debt on ‘knife’s edge’

ATHENS: Greece's runaway debt is on a “knife's edge,” the International Monetary Fund's (IMF) mission chief to Athens said in an interview yesterday as he called for an “invigoration” of structural reforms in the vast Greek public sector.

“The Greek debt is sustainable but it is, as we say, on a knife's edge,” Poul Thomsen, deputy European director of the IMF, told Ethnos daily.

“Policies must be applied as planned, or the sustainability of the debt will be placed in doubt,” he said.

“The programme will not continue to deliver the desired results without a real invigoration of structural reforms in the public sector to ensure a further deficit reduction, and without further reforms to get economic recovery going next year.”

The EU and IMF bailed out Athens last year with a package worth 110 billion euros (US$160bil) but the country remains in serious financial difficulty, with credit rating agencies having demoted Greece's bonds to junk status.

Athens' debt has exploded to over 350 billion euros and market hostility has kept the struggling country from raising fresh loans, forcing European leaders to the drawing table once more for a new bailout.

Eurozone nations will hold an extraordinary summit on Thursday in Brussels to discuss how to tackle the debt crisis and provide fresh aid for Greece.

EU nations have been forced to move quickly to stop the debt crisis spreading from Greece, Ireland and Portugal to other countries perceived as vulnerable, such as Italy and Spain.

The IMF last week noted that Athens needed another 100 billion euros in aid to avoid a default, and that it should come from the EU and private creditors.

It also warned that Greece's debt will hit 172% of output next year.

The European Central Bank (ECB) projects a slightly less adverse scenario, arguing that the Greek debt will peak at 161% in 2012.

“The debt will peak in one or two years and will then decline steadily,” Thomsen said yesterday as he defended the recovery programme applied by the IMF, the ECB and the EU, known as the “troika” in Greece.

“The programme has until now achieved most of what we set out to achieve,” he said.

The plan has been criticised in Greece for excessive cuts that fuelled a greater-than-forecast recession, which in turn neutralised part of the austerity measures.

Thomsen argued that if Athens persisted with more planned cutbacks and a sweeping privatisation drive, “markets will say this is impressive, perhaps we need to take a second look at Greece.” AFP