Greece Keeping Euro Is Only Choice: Papademos

By Eleni Chrepa and Maria Petrakis - Nov 15, 2011 3:49 PM GMT+0700

Greek Prime Minister Lucas Papademos, charged with securing international financing to avert a collapse of the economy, said keeping the euro is the only way forward for the country.

“Our membership of the euro is a guarantee of monetary stability and creates the right conditions for sustainable growth,” Papademos told lawmakers late yesterday at the start of a three-day debate on a confidence motion in his new government. “Our membership of the euro is the only choice.”

Papademos formed a government on Nov. 11 after four days of political wrangling. It must implement budget measures and decisions related to an Oct. 26 European bailout amounting to 130 billion euros ($177 billion), as well as manage a voluntary debt swap, by the end of February. The German government suggested yesterday countries should be allowed to leave the euro if the task of staying in it becomes too tough.

The immediate priority for Greece is securing the payment of an 8 billion-euro loan instalment under a previous 110 billion-euro European Union-led rescue, Papademos said. The tranche must be paid before the middle of December to prevent a collapse of the country’s economy.

Greece plans to sell 1 billion euros of 13-week Treasury bills today, the only financing it’s getting that isn’t coming from the EU and International Monetary Fund.

Debt Talks

The country and its creditors will start negotiations tomorrow in Frankfurt on implementing the debt swap agreement reached at the EU summit last month, the Kathimerini newspaper reported, without saying where it got the information.

Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of the bailout plan. Its 4 percent notes due in August 2013 now trade at 35.5 cents. Fitch Ratings said the agreement with creditors would be a “default event” if implemented, while the International Swaps and Derivatives Association said it won’t trigger credit-default swaps, which are used to insure against non-payment.

Papademos’s appointment was agreed by former Prime Minister George Papandreou of the Pasok socialist party, opposition New Democracy leader Antonis Samaras and anti-immigrant LAOS party leader George Karatzaferis.

Three Months

Samaras said yesterday that backing for the interim government should last no more than the three months needed to secure the financing before elections are held.

“The danger is that this is a really transitional service government, a pre-electoral government that will do all the right things to secure the loan but will be unable to promote the real reforms,” Yannos Papantoniou, a former finance and economy minister in a previous Pasok government.

Disbursement of funds was halted by German Chancellor Angela Merkel and French President Nicolas Sarkozy after Papandreou called a referendum on the second European bailout terms, roiling markets and angering Greeks and EU partners.

German Finance Minister Wolfgang Schaeuble yesterday said Merkel’s government wants Greece to remain a member of the euro region. Her Christian Democratic Union party at the same time voted to allow euro states to quit the currency area.

“We want Greece to stay in it, that everybody stays in it,” Schaeuble said in an interview on Phoenix television. “We also want to help them to stay in it. But if a country can’t carry the burden or doesn’t want to carry the burden, and the Greek people have to carry a heavy load, then we have to respect the decision of this country.”

Deeper Reforms

Papademos told lawmakers there was a clear commitment from EU partners to provide financing as long as the country proceeded with structural reforms and austerity measures.

The 64-year-old premier is seeking a vote of confidence in his government from the parliament’s 300 lawmakers. The vote is expected to be held on Nov. 16.

“Our task is disproportionately great in relation to the time we have at our disposal,” he said in his speech.

A written pledge required by the EU from the government and opposition leaders to implement those reforms isn’t a “demand from faceless powers and organizations,” he said. It expresses the “demands and expectations of people and taxpayers in countries which directly and indirectly support us,” he said, responding to opposition leader Samaras, who repeated yesterday he wouldn’t sign a separate letter.

Troika Visit

A small team of officials from the European Commission, the IMF and the European Central Bank is likely to visit Athens soon to discuss matters with the Greek government and political parties, European Commission spokesman Amadeu Altafaj said.

“We still have to wait to get a clear and unequivocal written statement about the commitments to be undertaken by the Greek authorities” regarding the Oct. 26 deal, Altafaj said yesterday. There’s no deadline for these commitments, which need to be offered “as quickly as possible” to restore confidence.

The euro was down 0.3 percent to $1.3595 at 10:31 a.m. Athens time. European stocks declined, with the Stoxx Europe 600 dropping 0.4 percent to 237.62. Greece’s benchmark general index fell 2 percent to 747.27. The yield on the 10-year Greek bond fell 54 basis points to 27.90 percent. Two-year note yields rose 27 basis points to 109.84 percent.

Budget Details

The government plans to put the final touches to the 2012 budget as well this week.

Greece’s biggest public and private sector union groups will hold a general strike on the as yet unspecified day the 2012 budget is being voted in parliament, Costas Tsikrikas, chairman of public sector union ADEDY, told reporters yesterday. Public employees will also hold a work stoppage from midday today to protest against job and pay cuts.

A majority of Greeks say Papademos was the right choice to lead the interim government and that elections should be held later than currently envisioned in mid-February, according a poll published in Athens-based Ethnos newspaper.

Of the 952 households polled by Marc SA from Nov. 10-11, 79 percent approved of Papademos. When asked if the government’s term should last longer, 54 percent agreed, while 76 percent said it should make important decisions during its term.

To contact the reporters on this story: Tom Stoukas in Athens at astoukas@bloomberg.net; Maria Petrakis at mpetrakis@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net