Almost a year after Greece received the biggest bailout in history, demands are growing for a debt restructuring
Greece has strongly denied it is heading for a sovereign default amid growing speculation that its debt has become unsustainable, almost a year after it was granted the biggest bailout in history.
Rebuffing reports that the country's burgeoning €340bn (£302bn) debt – predicted to reach 158% of GDP by 2012 – is at imminent risk of becoming unmanageable, the Greek finance minister Giorgos Papaconstantinou ruled out the prospect of a restructure, saying Athens was "on course" to putting its economy on track.
"We [the government] do not agree with the debt restructure idea. We can create new job positions and focus on investments instead. We will not be changing course," he said on Wednesday. "When you are in the depth of recession, you don't necessarily see the light. You think things will continue to be black forever."
Eleven months after agreeing €110bn in rescue loans from the EU and IMF, George Papandreou's socialist government insists the financial lifeline will be enough to get through the country's worst economic crisis since the second world war. A restructuring, say officials, would not only be bad for banks and pension funds holding Greek debt, and make it impossible for the country to return to capital markets, but would be catastrophic for the eurozone where it could have a contagious effect. Not since the 1950s has a western state been forced to restructure its debt.
But Greece's worsening recession and galloping unemployment rates – the result, mostly, of unprecedented fiscal measures implemented in return for the bailout – and the spectre of yet more austerity policies has ensured that Greeks are now willing to throw national pride to the winds in favour of a default.
With the vast majority complaining of little gain for the financial pain they have had to endure – the average family has seen its disposable income drop by up to 40% as a result of rises in tax and pay and pension cuts – most now support the idea of a debt restructure.
MPs in Papandreou's restive Pasok party have grown increasingly vocal about the need for a restructure. "It's better to have a restructuring now, not necessarily haircuts but perhaps a repayment extension since the situation is going nowhere," said the veteran socialist MP Vasso Papandreou who heads parliament's economic affairs committee. "We keep taking measures as if we are in a vicious cycle."
Before yet more spending cuts his government is expected to announce on Friday, Papandreou is gathering his parliamentary group in an emergency session with an appeal to stay the course. The measures, which could include taxing fizzy drinks to help redress fiscal shortfalls, face a tumultuous vote in Athens' 300-seat parliament next month.
The ratings agency Standard & Poor's rejected the notion that long-overdue structural reforms would lead to growth, predicting that Greece had a "one-third chance" of restructuring its debt.