Having state property means Greece is solvent – ECB

2011-06-06 15:11

Frankfurt – Financially troubled Greece can pay its debts if it is willing to sell off billions in state property and carry through on plans for budget cuts, a top European Central Bank official said today.

Lorenzo Bini Smaghi said Greece, with a debt of €330 billion ($485 billion) and “marketable assets” of €300 billion ($435 billion), is “solvent to the extent that it is willing to sell off some of those assets.”

In a speech in Berlin, Bini Smaghi said Greece needs to find the will to do this – as well as the determination to close its budget deficit, which requires backing off from spending decisions of the past decade. He noted that just holding public employee salaries to the rate of inflation over that period would have meant 30 percent less debt measured against gross domestic output.

“The key question is whether the Greek government and the Greek people are willing to implement these measures,” he said, according to a text posted on the ECB website.

European officials are working on a possible second bailout for Greece after a €110 billion ($159 billion) rescue last year from the 16 other eurozone governments and the International Monetary Fund failed to put the country back on its feet.

Prime Minister George Papandreou of Greece has agreed to more cutbacks but is facing strong political resistance as the austerity measures hit living standards.

Greece has promised to raise €50 billion ($72.5 billion) in an ambitious privatisation program through 2015, selling off regional airports and state-run companies, and making use of state land and property that includes largely idle facilities from the 2004 Athens Olympics.

The plan is facing broad public and union hostility, especially since the privatisation plan comes when the price of many of the assets is low because of the recession. The government insists it will not sell real estate on a large scale but earn the money from leasing projects.

Thousands of Greeks protested yesterday for the 12th consecutive day in Athens and other cities against the privatisation scheme.

Many economists, however, take a more pessimistic view of Greece’s situation than does Bini Smaghi.

They say Greece’s debts are too big to be repaid and will have to be reduced in size through a restructuring – unless other euro countries are willing to keep funding more bailouts.

European officials reject forced restructuring as a solution but have raised the possibility of having bondholders bear some of the burden of fixing Greece’s debt problems, perhaps by agreeing to voluntarily roll over bond holdings.

The IMF also says a Greek debt restructuring is not foreseen.

“Right now the program which we are supporting ... does not contemplate a debt restructuring,” the IMF’s acting managing director John Lipsky said in London.

Bini Smaghi, a member of the central bank’s six-member executive committee, also said today that Greece would be even worse off if it forces bondholders to take less than the amount they are owed.

He says Greece must stick to its deficit reduction plans.

He confined his remarks to restructuring plans that cost bondholders money and did not address so-called “soft” options of voluntary bond renewals or stretched-out payments.

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