In-focus

Business

Greece may need further debt restructuring: EU officials

Dunya News

Greece had little hope of meeting the terms of its bailout, says EU officials.

Spain paid the secondhighest yield on short-term debt since the birth of the euro atan auction on Tuesday, and EU officials said Greece had littlehope of meeting the terms of its bailout, casting fresh doubt onits future in the euro zone.Spains increasingly desperate struggle to put its financesright has seen its borrowing costs soar to levels that are notmanageable indefinitely, reflecting a growing belief that itwill need a sovereign bailout the euro zone can barely afford.It has become the recent focus for investors, but Greece -where the sovereign debt crisis began - remains a powder keg. IfAthens were to default or exit the euro zone, the knock-oneffects could push Spain and even Italy over the edge.With inspectors from the EU, European Central Bank andInternational Monetary Fund returning to Greece to decide whether to keep it hooked up to a 130-billion-euro lifeline orlet it go bust, three EU officials said they were likely toconclude Athens cannot repay what it owes, making a further debtrestructuring necessary.This time, the European Central Bank and euro zonegovernments would likely have to take a hit on some of theestimated 200 billion euros ($240 billion) of Greek governmentdebt they own if Athens is to be put back on a sustainablefooting.But there is no willingness among member states or the ECBto take such dramatic action at this stage.Greece is hugely off track, one of the officials toldReuters, speaking on condition of anonymity. Thedebt-sustainability analysis will be pretty terrible.Prime Minister Antonis Samaras said Greeces economy couldcontract by more than 7 percent this year, pushing debt-cuttingtargets further out of reach, but he pledged to stay the course.There are certainly delays in this years agreed programme,and we must quickly catch up, Samaras told party colleagues.Lets not kid ourselves, there is still big waste in the publicsector, and it must stop.Underlining the pressure on the euro zone, Moodys InvestorService lowered the outlook on the EUs temporary bailout fund,the European Financial Stability Facility (EFSF), afterthreatening the top-notch credit rating of three of its mainbackers, including Germany, earlier in the week.The Spanish Treasury sold the 3 billion euros of three- andsix-month bills it was aiming to, though yields climbed; thesix-month paper jumped to 3.691 percent from 3.237 percent lastmonth.The most important takeaway from this auction is that Spainwas able to get all its debt out the door, said Nicholas Spiroof Spiro Sovereign Strategies. Still, in March, Spain was ableto issue six-month debt at a yield of under 1 percent. Now it ispaying 3.7 percent.Spain had cushioned itself by securing well over half itsannual debt needs in the first six months of the year whenmarket conditions were more benign, but that advantage hasevaporated as its funding needs for the rest of the year havegrown.On Friday, the government said it expected the economy toremain in recession well into next year, while the autonomousregion of Valencia became the first to ask Madrid for aid to paydebt obligations it cannot meet. Others are expected to follow.Spains northeastern region of Catalonia, responsible for afifth of the countrys economic output, admitted it hadfinancing needs to meet while its access to markets was shut,but had not decided yet whether to tap a state liquidity line.