Aix-en-Provence, France: The European Union needs to look for ways of reducing Greece's debt servicing costs, Swedish Finance Minister Anders Borg said, suggesting a shift in focus as the bloc begins considering additional aid for the country.
More than a year after the EU and the International Monetary Fund extended Greece €110 billion (Dh576 billion) in aid, they're considering options for additional support as the country's borrowing costs and indebtedness continue to grow.
The yield on two-year Greek notes rose to a euro-era record of more than 30 per cent last week. The nation's debt burden will rise to 158 per cent of GDP this year from 143 per cent in 2010, according to EU forecasts.
"If the Greeks are now delivering, and if they can stick to that plan and continue to perform in a way that is building credibility, that is shifting the balance of discussion," Borg said yesterday in an interview in Aix-en-Provence, France.
"They are at a very, very high debt level, so if we are going to see them return to the market, we have to do something about restoring debt service," he said, adding that reducing interest rates and debt guarantees are among options that need to be considered.
Greek bonds
European finance ministers gather in Brussels today to discuss a possible package, though an agreement probably won't be reached before early in the European autumn, Borg said. Any effort to draw support for Greece from banks, insurers and other investors should also be judged on how it improves debt sustainability, he said.
Financial firms are discussing a proposal from French banks to roll over 70 per cent of bonds maturing by mid-2014 into new 30-year Greek debt backed by AAA-rated collateral. EU leaders want creditors to voluntarily roll over about €30 billion of Greek bonds to support loans by the bloc and the International Monetary Fund.
Standard and Poor's said last week that the French plan would be considered a "selective default", prompting Germany to revive a proposal to simply lengthen the maturity of Greek debt.
"It's not clear that the French plan meets the idea of reducing debt service costs on the Greek economy," Borg said. Whatever happens, Greece "cannot go to a default situation" and there must be "no credit event", he said.
Italian tensions
Europe is trying to draw a line under a debt crisis that Greece sparked more than a year ago and that threatens the 12-year-old monetary union. Ireland and Portugal sought emergency aid totalling €146 billion after the initial bailout of Greece in May 2010 and investors remain concerned about some bigger euro nations including Spain and Italy.
