By Ingrid Melander
ATHENS, Nov 13 (Reuters) - Greece must focus on meeting targets to cut its budget deficit, ECB policymaker Lorenzo Bini Smaghi said in an interview, warning that any renegotiation of the terms of EU/IMF loans would harm its credibility.
The debt-choked nation is set to miss a target to reduce its deficit to 7.8 percent of gross domestic product this year due to weak revenue growth and the upward revision of last year's deficit, a Greek government official told Reuters this week.
'Greece has to achieve its objectives in order to regain credibility. We must now focus on 2011,' Executive Board member Bini Smaghi said in an interview to be published on Sunday by Greek newspaper Kathimerini.
'Any discussion about changing targets will lead to a loss of credibility. All gains will be instantly lost, while the trust of all those who supported you will be shaken,' he said.
The Greek government has cut public spending, frozen pensions and increased taxes as agreed with the European Union and the International Monetary Fund in May in return for a 110 billion euro ($150 billion) bailout to stave off bankrupcty.
The government says it is determined to meet its targets and is considering further spending cuts in next year's budget to achieve that, but will not increase taxes or cut wages.
The government, which won only a wafer-thin victory in the first round of local elections last weekend, may find it tough to impose further belt-tightening on a population which has already endured a host of unpopular reforms in the past year.
Although its lenders have praised it over the past months for progress in cutting its deficit, slippage is apparent in interim budget figures.
In the year to October, the central government's budget gap shrank by 30 percent year-on-year, less than the 36.9 percent full-year target foreseen in the EU-IMF bailout plan, finance ministry data showed on Wednesday.
The much-revised 2009 deficit, whose latest forecast was at 13.8 percent of gross domestic product (GDP), is expected to be revised by the EU's statitics office to about 15.5 percent of GDP next week.
'Central government expenditure has been effectively contained, but the same needs to be done in the other sectors, pension funds, local authorities, public utilities,' Bini Smaghi said. 'Attempts to increase revenue have so far been problematic, and it is important to tackle tax evasion.'
'By setting its public finances straight, Greece will only benefit,' Bini Smaghi said in the interview. 'It will be difficult but certainly preferable to a loss of national wealth which would result from bankruptcy. This is how you can regain credibility and market access. Other discussions, such as the renegotiation of loan terms, now only harm your credibility.'
He did not specify what discussions he was referring to.
Greece will face a big jump in borrowing needs when the 3-year EU/IMF bailout expires and both the government and the IMF have said that rescheduling debt repayments was an option, although Germany strongly opposes this.
Many opposition policymakers in Greece oppose the EU/IMF plan.
'Politicians in Greece should not forget that, without the support of the euro area Member States and the prospects to borrow again from the markets, Greece would not be able to pay wages and pensions,' he said. 'So, you shouldn't harm your own credibility by making statements which renege on previous commitments.'
He said the Greek economy would come out stronger from this process and that it sould be 'superficial and stupid' to think Greece would benefit from a bankruptcy.
While Bini Smaghi said no friend of Greece would bring up the option of bankruptcy, he said that countries which were not willing to stick to agreed austerity programmes in exchange for aid should restructure their debt.
Whether to restructure debt should always remain the decision of the country concerned, he added.
He also said any EU crisis management mechanism should ensure euro-zone stability and that rescue conditions have to be tough to convince countries to restructure their economies.
(Additional reporting by Sakari Suoninen in Frankfurt) ($1=.7332 Euro) Keywords: GREECE ECONOMY/BINISMAGHI (ingrid.melander@reuters.com ; +30 210 337 6438; Reuters Messaging: ingrid.melander.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
ATHENS, Nov 13 (Reuters) - Greece must focus on meeting targets to cut its budget deficit, ECB policymaker Lorenzo Bini Smaghi said in an interview, warning that any renegotiation of the terms of EU/IMF loans would harm its credibility.
The debt-choked nation is set to miss a target to reduce its deficit to 7.8 percent of gross domestic product this year due to weak revenue growth and the upward revision of last year's deficit, a Greek government official told Reuters this week.
'Greece has to achieve its objectives in order to regain credibility. We must now focus on 2011,' Executive Board member Bini Smaghi said in an interview to be published on Sunday by Greek newspaper Kathimerini.
'Any discussion about changing targets will lead to a loss of credibility. All gains will be instantly lost, while the trust of all those who supported you will be shaken,' he said.
The Greek government has cut public spending, frozen pensions and increased taxes as agreed with the European Union and the International Monetary Fund in May in return for a 110 billion euro ($150 billion) bailout to stave off bankrupcty.
The government says it is determined to meet its targets and is considering further spending cuts in next year's budget to achieve that, but will not increase taxes or cut wages.
The government, which won only a wafer-thin victory in the first round of local elections last weekend, may find it tough to impose further belt-tightening on a population which has already endured a host of unpopular reforms in the past year.
Although its lenders have praised it over the past months for progress in cutting its deficit, slippage is apparent in interim budget figures.
In the year to October, the central government's budget gap shrank by 30 percent year-on-year, less than the 36.9 percent full-year target foreseen in the EU-IMF bailout plan, finance ministry data showed on Wednesday.
The much-revised 2009 deficit, whose latest forecast was at 13.8 percent of gross domestic product (GDP), is expected to be revised by the EU's statitics office to about 15.5 percent of GDP next week.
'Central government expenditure has been effectively contained, but the same needs to be done in the other sectors, pension funds, local authorities, public utilities,' Bini Smaghi said. 'Attempts to increase revenue have so far been problematic, and it is important to tackle tax evasion.'
'By setting its public finances straight, Greece will only benefit,' Bini Smaghi said in the interview. 'It will be difficult but certainly preferable to a loss of national wealth which would result from bankruptcy. This is how you can regain credibility and market access. Other discussions, such as the renegotiation of loan terms, now only harm your credibility.'
He did not specify what discussions he was referring to.
Greece will face a big jump in borrowing needs when the 3-year EU/IMF bailout expires and both the government and the IMF have said that rescheduling debt repayments was an option, although Germany strongly opposes this.
Many opposition policymakers in Greece oppose the EU/IMF plan.
'Politicians in Greece should not forget that, without the support of the euro area Member States and the prospects to borrow again from the markets, Greece would not be able to pay wages and pensions,' he said. 'So, you shouldn't harm your own credibility by making statements which renege on previous commitments.'
He said the Greek economy would come out stronger from this process and that it sould be 'superficial and stupid' to think Greece would benefit from a bankruptcy.
While Bini Smaghi said no friend of Greece would bring up the option of bankruptcy, he said that countries which were not willing to stick to agreed austerity programmes in exchange for aid should restructure their debt.
Whether to restructure debt should always remain the decision of the country concerned, he added.
He also said any EU crisis management mechanism should ensure euro-zone stability and that rescue conditions have to be tough to convince countries to restructure their economies.
(Additional reporting by Sakari Suoninen in Frankfurt) ($1=.7332 Euro) Keywords: GREECE ECONOMY/BINISMAGHI (ingrid.melander@reuters.com ; +30 210 337 6438; Reuters Messaging: ingrid.melander.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.