Greek Premier, Papandereou, Praises European Debt Deal

The accord, reached early Thursday morning in Brussels, includes an agreement by banks to accept a 50 percent loss on the face value of their Greek debt.

“The agreement allows us to make the necessary reforms without the burden of debt hanging around our necks,” Mr. Papandreou said, referring to Greece’s demanding — and unpopular — program of austerity measures and structural changes.

“Everyone needs to carry out his own personal revolution,” he said, calling on Greeks to support reforms.

But even as the agreement gave the country some much-needed breathing room, there were concerns about whether the reduction in Greek debt would help the nation’s rapidly shrinking economy, which has endured a credit crunch. For their part, Greek businesses were worried that the proposed nationalization of some banks might give the state too much control over the economy.

Some critics dismissed the accord, whose details were somewhat vague, as little more than window dressing.

“The most important problem is the bank capitalization,” said Yanis Varoufakis, an economist at the University of Athens, referring to a component of the plan that forces banks to raise new capital to protect themselves from possible sovereign debt defaults. “They didn’t specify how they were going to do it, or what they did say leaves a great amount of doubt.”

“It’s a complete fiasco,” he said of the new plan, “which is being once again paraded around as a great triumph.”

The new deal aims to bring down Greece’s debt to 120 percent of gross domestic product by 2020. Mr. Papandreou said Thursday that this would make the country’s debt “absolutely sustainable” and that there would be no more primary budget deficits. “From next year, we’ll be moving on to primary surpluses,” he said.

But many in Greece wondered how that could happen. The Greek economy contracted by 5.5 percent this year, and it is projected to shrink by 3 percent next year. Last month, the 2011 estimated budget deficit was increased to 9.5 percent of G.D.P., from 8.6 percent.

Greece’s once-protected public sector, which still employs one in five Greeks, has been hit by across-the-board wage cuts and planned layoffs, but with the credit crunch and the global economic slowdown, Greece’s private sector has been hit harder.

Unemployment is 16 percent and increasing. Since 2009, the Greek economy has lost all of the 320,000 jobs it created between 2000 and 2008, according to Savas Robolis, a labor market expert at the Greek General Confederation of Labor, the country’s main trade union.

“For a long time, banks have stopped giving loans to small businesses and they’re struggling,” Mr. Robolis said.

The banks’ agreement to accept a huge loss on their Greek debt “will force banks to sanitize their portfolios,” he said. “The liquidity, which has fallen, will be even worse if they’re not quick to recapitalize by March or April. If things don’t pick up, it will get ugly.”

Mr. Robolis, who has advised the government on pension reform, said that Greece’s pension funds, a portfolio worth about $34 billion, would also need an infusion of capital because of losses they were expected to incur in the write-down of Greek debt.

Even as Mr. Papandreou emphasized that the debt accord “creates new potential for growth and liquidity to return to the real economy,” the details of the recapitalization remained unclear.

In a news conference here, Finance Minister Evangelos Venizelos said that the new $184 billion rescue package pledged by foreign creditors as part of the new deal would cover Greece’s financing needs and allow it to recapitalize its banks.

Of that package, $42.5 billion has been earmarked as incentives for banks participating in private sector involvement in the write-down, and another $42.5 billion would provide banks with new capital.

But half of the recapitalization fund, or $21.3 billion, would come from planned privatizations of Greek state assets — a program widely seen to have stalled — as well as from a new Greek-German solar energy project.

Article source: http://www.nytimes.com/2011/10/28/world/europe/greek-premier-papandereou-praises-european-debt-deal.html?partner=rss&emc=rss