It was nearly a year ago that Greece became an unwilling trendsetter by deciding to accept a $159-billion bailout from the European Union and the International Monetary Fund because it could no longer pay its bills.
Since then, Ireland has also been thrown an emergency financial lifeline, and Portugal is in negotiations for its own rescue package.
But many experts believe default of some sort to be inevitable, especially for Greece, which is expected to announce a new round of austerity and privatization measures Friday in an attempt to avoid it.
As he rushed to put the finishing touches on the package, Greek Finance Minister George Papaconstantinou spoke to The Times in his office in downtown Athens.
We're a year into the bailout program, yet the spreads on Greek bonds are actually higher than they were a year ago. Does that show the markets don't have confidence in what Greece is doing?
It shows that we still have some way to go to convince the markets. It shows that the effort is a marathon and not a sprint. It shows that since then, what has come to the surface [are] some broader systemic issues which the Eurozone is trying to deal….
As far as we're concerned, we will be continuing the fiscal consolidation effort that we've started and, more importantly, the structural reforms in order to be able to regain access to the markets and transform the economy.
Plenty of people are talking about restructuring Greece's debts, and a majority of your own countrymen now think that this is going to happen. Why not go ahead and do it?
The costs of a restructuring that incurs losses to bondholders [are] problems in the domestic banking system and potential contagion effects in other European countries. Therefore we do not entertain this idea.
Your government, and those of Portugal and Ireland, insisted they would not go for a bailout, until the day that they did. Why are the denials about restructuring any more credible?
That's a legitimate question. But the question about restructuring, in the end, is a question about debt sustainability.... I would much rather that the discussion centered on the main parameters that define whether debt is sustainable or not; namely, whether we are achieving sustainable primary surpluses, whether growth regains momentum and whether our borrowing costs stay below a certain level.
On the first, we will be running primary surpluses from next year on.... On the issue of growth, we think that the last quarter of 2010 was the worst, and we are now in the beginning of the recovery phase. We have some very encouraging news from exports.
Everything that we're doing is nothing short of a positive supply shock to the economy, which should lead to higher growth potential. And that means it should not be too hard to get back to growth of 2 to 2.5% by 2013....
So I take your point, but I prefer to point to fundamentals.
Isn't the EU's decision last month to lower interest rates and lengthen debt maturities for the bailout package already a form of restructuring?
One may label such things as one wants. This is the recognition that the original schedule created a hump [of debt repayment] in 2014 and 2015 which was clearly unsustainable. And that has been taken care of in terms of lengthening the maturities.
As far as the interest rate is concerned, it has been recognized that this is the kind of interest rate that is more suitable to a really very, very fast-growing economy outside the European family. When those rates were decided, the paramount issue was one of avoiding moral hazard. Now the paramount issue is one of debt sustainability, so the focus has shifted, hence the better terms.
Is there a tipping point where restructuring becomes inevitable?
I don't think that a decision of this type would be entertained at any [one] point....
I understand that for some people, it's the easy way out. But the underlying structural problems, both of the fiscal and competitiveness nature, will continue to be there. We are spending currently about 20 billion [euros] more than we have in our disposal in the public sector. No restructuring will change that. Only serious fiscal reform will. We are not a competitive country. No restructuring will help correct that.
Greece hasn't met the deficit-reduction targets that were originally set by the bailout package. Why should the markets think you'll be any more successful with the new austerity and privatization measures to be announced Friday?
We may have fallen short of the deficit-reduction target for 2010. However, we have made in one year the biggest-ever fiscal consolidation in any European country, and that's a good start for what is a longer road.
In a program as difficult, as ambitious, as complex as this, there will always be some delays, some missteps. The question is, are you moving not just in the right direction but also fast enough, and I think we are by all accounts on track.
If the debt situation starts affecting Spain and the EU decides to restructure the debt of all three bailed-out countries, can Greece say no?
There is no such discussion going on at the moment at the level of the Eurozone. We are not engaged in any official sense in such negotiations.... I keep reading we have mandated people to do that. There is no mandate for any entity to prepare or undertake such an exercise for us. Obviously, we read the analysis and we follow the debate, but we are sticking to doing what we have committed to do and what we have agreed with our partners.
Wouldn't restructuring be politically easier?
We don't pick our policies on the basis of what is politically easy. We pick our policy on the basis of what we consider best for the economy and for Greek citizens.
But many of your citizens are very angry about what you're doing.
That's unavoidable. If you've had your salary cut by 15% if you're a public servant, if you've had your pension cut by 10%, or if you're facing high VAT rates, you would obviously be concerned.
However, we recently won a regional election handsomely. All polls continue to put us ahead, even though with a slim margin. That's not bad for a government that had to go through the most difficult decisions seen in generations in the country.