Business

Greece prime minister seeks signs of support

  • 27 September 2011
  • From the section Business

Greek Prime Minister George Papandreou has said it is very important his country gets indications of support from "our European partners".

Speaking in Berlin he said Greece would fulfil its obligations and hoped to be without a primary deficit from 2012.

"The conditions have changed due to the recession," he said. "But the goals have remained the same."

It came after he had appealed to German business leaders to help his country out of its current debt crisis.

Property tax

Mr Papandreou attended a media conference on Tuesday evening with German Chancellor Angela Merkel, where she said Germany wanted a strong Greece.

"We will do everything that is necessary for that," said Mrs Merkel, but added that Greece had to fulfil its obligations in order to keep the support of the International Monetary Fund, the European Central Bank and the EU Commission.

"Through the euro, we are closely bound together, and the weakness of one affects us all," she added.

Meanwhile the Greek parliament has passed a controversial new property tax bill, first announced earlier this month, that aims to boost revenues.

All 154 of the ruling Socialist PASOK party's deputies voted in favour of the measure, winning a majority in the 300-seat parliament.

The move will prove controversial among Greeks, with the extra tax to be paid through electricity bills to make it easier for the state to collect.

Anyone who does not pay the new tax risks having their power cut off.

Plea to Germany

Earlier in the day, Mr Papandreou said German funding would not be an investment in past failures, but in future successes.

He also hailed Greece's "superhuman" efforts to cut its debt levels.

Mr Papandreou has been in Germany for talks with German Chancellor Angela Merkel to discuss his country's progress in cutting its budget deficit.

Mr Papandreou said the current debt crisis provided a "unique opportunity to launch important reforms that Greece badly needs to become competitive again".

Drawing parallels with the reunification of Germany, he talked of the "rebirth of a nation".

"Your contribution can be crucial," he told the assembled businessmen and women.

Mr Papandreou said that in 2010 Greece had overseen the "largest fiscal consolidation in a single year [of any eurozone member]" in reducing its budget deficit by five percentage points.

By 2012, he said, the country would see a budget surplus.

The public sector in Greece had been a "major obstacle to growth, but very soon that won't be the case... we will fight our way back to growth and prosperity", he added.

Mrs Merkel responded by saying that "we respect what Greece has done in terms of structural changes. We all wish to strengthen Greece".

Mr Papandreou's visit to Germany comes as policymakers decide whether to release the latest tranche of Greek bailout funds.

The European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) are due in Athens this week to review Greece's progress in cutting its debt levels.

Together, they will decide on whether to release the latest tranche of bailout funds the Greek government needs to pay its bills.

Ahead of the visit, Greek Finance Minister Evangelos Venizelos said that his country would receive the funds next month.

More importantly, Mr Papandreou has an eye on a key vote in Germany later this week on whether to expand the powers of the eurozone bailout fund. There is a good deal of opposition in Germany to what many people there see as underwriting the entire bloc.

'Wrong idea'

Mrs Merkel, speaking to the same business leaders, said further stimulus packages were not the answer to the current debt crisis.

"We need to combine economic growth with solid public finances," the chancellor said.

"The idea that you need to boost growth by taking on ever greater debt is the wrong idea. I am deeply convinced of that."

She also dismissed the idea of issuing bonds backed by all 17 members of the eurozone - so-called eurobonds - because their adoption would result in what she called a union of debt.

European leaders are trying to agree a comprehensive package to solve the eurozone debt crisis once and for all.

However, divisions remain between member states on how best to do so.

G20 leaders met over the weekend to discuss the best way forward, but EU officials stressed that no grand plan of action had been agreed.

A number of ideas were reportedly discussed, including a 50% write-down of Greece's government debts.

Other proposals included strengthening big European banks that could be hit by any defaults on national debt obligations, and boosting the size of the eurozone bailout fund.

However, late on Monday German Finance Minister Wolfgang Schaeuble cast doubt on plans to bolster the European Financial Stability Facility (EFSF).

"We are giving it the tools so it can work if necessary," he said.

"Then we will use it effectively, but we do not have the intention of boosting its volume."

On Thursday, Germany will vote on whether to approve proposals set out in July to extend the powers of the EFSF that would allow it to buy the bonds of highly-indebted countries, and to make credit available to both governments and under-capitalised banks.

'Brutal selling'

Despite Mr Schaeuble's comments, global shares rallied strongly on hopes that leaders were finally poised to act decisively.

The Dow Jones in New York closed up 1.3%, while France's Cac index ended up 5.7%, Germany's Dax 5.3% and the UK's FTSE 4%.

Japan's Nikkei index closed up 2.8%, Hong Kong's Hang Seng rose 4.2% and South Korea's Kospi climbed 5%.

However, analysts warned the gains could be short lived.

"We've experienced these types of temporary rebounds many times before, with markets coming up for air after days of brutal selling," said Kazuhiro Takahashi at Daiwa Securities.

"Again, this will likely be a short break before we see more evidence of progress in the Greek debt crisis," he said.

Markets have been extremely volatile in recent weeks as investors worry that the debt crisis may spiral out of control. They have been critical of policymakers' inability to take decisive action thus far.

On Monday, President Barack Obama also warned of the far-reaching impact of the crisis.

"[Europe] never fully dealt with all the challenges that their banking system faced... So they're now going through a financial crisis that is scaring the world," he said.

"It's now being compounded by what's happening in Greece."