Without EU bailout, Greece faces Sisyphean task

ATHENS: Greece can raise enough funds to stumble along for years without EU aid but concrete support from its partners will be key to escaping a debt crisis shaking the euro zone.
Since a new government uncovered holes in Greece's finances, markets have been punishing Athens for its profligacy and dodgy statistics by demanding higher interest. That, in turn, has deepened a spiral of borrowing just to fund existing debt.
Greek Prime Minister George Papandreou has warned of the risk of imminent bankruptcy while a poll by Bank of America Merrill Lynch shows that more than one in five fund managers see a Greek debt default as likely.
Some 24 per cent of fund managers believe Greece can sort out its own debt crisis, however, and economists are inclined to agree, pointing out Papandreou's dire warnings are designed to convince a restive electorate of the need for urgent reform.
Greek officials have told euro zone partners they cannot go on paying 6-6.5 per cent interest rates for long and, as EU finance ministers thrash out a possible aid package, Papandreou has insisted he just wants to borrow at normal euro zone levels.
But economists say the risk of default from high interest rates is not imminent. As long as markets are willing to lend to Greece at current rates, it can continue to raise enough to pay the bills.

"A decline in yield spreads below the level of 200 basis points is unlikely," said Gikas Hardouvelis, chief economist at EFG Eurobank and professor at the University of Piraeus.

EXTRA BURDEN DOABLE
Even if spreads stay at current levels of about 300 basis points and Greece does not manage to bring its borrowing cost down to 5.3 per cent from the 6.3 per cent it paid to raise 5 billion euros this month, it would not be a catastrophe.
"This means an extra burden of about 500 million euros this year, about the cost of a submarine, which is doable and not something that will make Greece default," he said. With a debt burden of 272 billion euros in 2009, Greece wants to borrow 53 billion this year.
A large part of that borrowing will be to service existing debt and the crunch comes in April and May when about 20 billion euros will mature. "If the government can only borrow at 6.5 per cent from now on, we estimate the average interest rate on its remaining debt would rise from about 4.3 per cent in 2009 to about 5.5 per cent in 2013," said Ben May of Capital Economics.

16 Mar 2010, REUTERS