Greece unable to return to bond markets in 2012

Berlin:  Greece's prime minister admitted for the first time that his country might not be able to tap the markets for its borrowing needs next year as the head of the eurogroup urged the debt-ridden country to set up an independent privatisation body overseen by the European Union to bring down its ballooning debt.

George Papandreou said in an interview in the daily Ethnos published on Sunday that "it does not appear at present that Greece will be able to cover its borrowing requirements in 2012 normally, from the markets."

As part of its €110 billion bailout deal with the European Union and the International Monetary Fund, Greece was expected to raise €27 billion to help pay its bills in 2012.

Papandreou also acknowledged that Greece "would most likely" default on its debt if the pending fifth installment of its €110 billion loan package were not granted as scheduled.

A decision on the €12 billion installment is due after a June progress review by the EU, the IMF and the ECB. Market interest rates for Greek governments bonds are currently prohibitively high because creditors fear the country might completely default or restructure its debt.

Soft restructuring

Papandreou also told the newspaper that Greece could only return to the markets once it runs a primary budget surplus. He did not give a date when he expects Greece to have such a budget surplus before interest payments.

The Greek leader's blunt comments gave the strongest indication yet that Greece will need further assistance from its creditors, probably at least the €27 billion it was meant to raise on its own next year.

Moreover, more European leaders floated the idea of a debt restructuring to give the country new breathing space.

German Finance Minister Wolfgang Schaeuble told the German weekly Bild am Sonntag that if private and public creditors share the burden and if "there is sufficient certainty" that Greece will eventually overcome the crisis, then "we could maybe think about extending the maturities of bonds that Greece would have to pay back next year.

"The experts have to tell us what's possible and what isn't possible because it would lead to uncertainty on the markets. This won't be easy," he told the weekly.

Luxembourg's prime minister, the head of the eurogroup, also said that once Greece consolidates its budget, a "soft restructuring" could be started.

"Then we can think about extending the maturities of public and private bonds and lower the interest rates," Jean-Claude Juncker told the German news weekly Der Spiegel's edition to be published yesterday.

Juncker chairs the meetings of the 17 Eurozone finance ministers.

However, the European Central Bank under its President Jean-Claude Trichet remains staunchly opposed to any debt restructuring for fear of contagion.

Schaeuble therefore stressed that any decision on restructuring would need the approval of the IMF and the ECB.

Amid the uncertainty created by the rumours about an upcoming restructuring, Greek borrowing costs last week spiked to record highs, with interest rates on 10-year bonds hovering around 17 per cent — or roughly a steep 14 per cent above the benchmark German government bonds.