Greece 'will not default', insists its finance minister

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What do you do when you're up to your ears in debt but with with no means of paying up?

Well, the governments in both Ireland and Greece have reached out to their eurozone family members for a financial lifeline.

Both are desperate to avoid a default because that would make any further future borrowing astronomically expensive.

But many critics believe defaults will be inevitable. If so, then many of the sacrifices being made by the Greek population could all have been in vain.

Greece's finance minister is George Papaconstantinou. For the BBC's World Business Report, Manuela Saragosa asked him what his response was to those economists who say that Greece will eventually default.

Transcript is below

George Papaconstantinou: Well, I beg to differ as you can imagine. Greece is in a programme and its funding needs are fully covered this year and part of next year. We are in the middle of a programme to have a fiscal consolidation effort which is quite substantial and which has already shown results, and a programme of structural reforms which will boost growth potential.

So at the end of the day, you are asking if a country will default, I mean the real question is can a country like Greece service its debt and the answer to that question is yes, if you have primary surpluses and if you are growing at a healthy rate.

In terms of primary surpluses, we reduced the primary deficits from 10% of GDP to 3%. We are going to bring it to level this year and we will be running a primary surplus from 2012 and going up to 5%.

Manuela Saragosa: But in the meantime, the Greek people are having to take an enormous amount of austerity and isn't there a risk that you are sucking the life right out of an already very fragile economy there in Greece?

George Papaconstantinou: Well, if you look at the EU as a whole, you will see that where Greece is now, is where the European Union was a couple of years back, where recession went to minus four for the EU in its entirety.

So we are not in a situation that no-one has found themselves before. It is true that people are being hit at the moment. It is true that there are businesses which are closing and employment is going up. This is the unfortunate price to pay to be able to reduce what was clearly an unsustainable deficit and bring our finances in order.

But compared with other countries, I would dare to say that there is recognition in this country by a majority of the population that this is a necessary process, it's a painful one, but it's a necessary one because we had gotten to a point where we were spending much more than we were earning in terms of receipts, where the economy was getting completely uncompetitive and we now have to make this right, and it's a difficult process but it's the only process that exists.

Manuela Saragosa: Okay. You must be very aware of what's going on in the rest of the European Union with Portugal on the brink and also Ireland now, the new government there trying to tinker with bailout terms. What message would you send to your colleagues in Portugal and Ireland?

George Papaconstantinou: I do not like sending messages to other governments that are having a very hard time in this situation.

Manuela Saragosa: But you must have an inkling of what they should be doing?

George Papaconstantinou: Well, the situation in Ireland is different from the one in Greece. The problem there is the banks. The situation in Portugal again is different. It's a decade of low growth, but their debt and deficit figures are nowhere near as bad as in our case. So each country has to choose its own path. It is a difficult path, but I would be very very careful to offer advice.

In our case, what we have done is to decide to bite the bullet and do what we had not done in many many years, which is to take decisions that we have been delaying for many years, to convince for the time being the population that this is something that we have to go through and we have to go through it all together.

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