Merkel Offers Words of Support as Greek Debt Worsens
Assistant News Editor, CNBC.com
German Chancellor Angela Merkel offered words of support for her counterpart, Greek Prime Minister Antonis Samaras in Athens on Tuesday, even as new data showed Greece's debt situation was worsening and as two former Greek government ministers told CNBC, international lenders would have to restructure its debts yet again.
"I think that recently the pace of reform has picked up considerably," Merkel said on her first visit to Greece since the debt crisis erupted here in 2009.
Seven thousand police officers and rooftop snipers and commandos were in place to provide protection for the German leader.
Thousands of protestors streamed into Syntagma square despite a ban on protests and a security lock down.
TV pictures showed protestors dressed as Nazi soldiers holding Nazi flags, while other protestors threw rocks at police who fired tear gas. Swelling anti-German sentiment in Greece has revived haunting memories of Greece’s Nazi occupation, which led to thousands of deaths.
CNBC’s Carolin Roth reported that many in the crowd were holding banners saying ‘Merkel not welcome’.
The German leader's visit came as the latest economic forecasts from the International Monetary Fund (IMF) showed the country will miss the five-year debt reduction target that underpins Greece's 130 billion euro ($169 billion) bailout. (Read More: Pay No Attention to IMF, Look at Companies: Gartman.)
The IMF forecast that Greek public debt will rise to 171 percent of gross domestic product (GDP) this year and 182 percent in 2013.
The IMF also warned Eurogroup finance ministers who met in Luxembourg on Monday that Greece’s debt would need restructuring and that it will be almost impossible to reduce the country’s debt levels to a target of 120 percent of economic output by 2020.
Two former government ministers also told CNBC a further debt writedown was now inevitable.
George Papaconstantinou, former finance minister of Greece from October 2009 to June 2011 said the IMF numbers were unsustainable.
“The Greek economy stopped growing sometime in 2008 and by the time we start growing again we’ll have lost a quarter of Greek GDP, that’s massive, it is huge,” Papaconstantinou said. “Merkel is visiting a country that is going through a very tough period.”
Greece is hoping to secure the next tranche of the 130 billion euros in aid from the troika. Without that aid, the country will run out of money by November, Prime Minister Samaras told a German paper.
The Wall Street Journal reported on Tuesday that Greece's creditors had reached an impasse on what to do next.
"If we recognize that there will have to be some movement on the debt, we will find a way,” Papaconstantinou said.
Peter Doukas, Greece’s former deputy minister of economy and finance, and the current chairman at Capital Partner, also said an official debt haircut was “absolutely inevitable.”
“The Greek debt is not repayable at this point,” Doukas said. “The economy is too weak to afford a 300 billion euro-plus ($388 billion) debt.”
With most of the debt owed to private creditors reduced in the last restructuring, another Greek debt writeoff would involve debt held by governments and the European Central Bank.
“There’s going to be an official debt haircut or restructuring or rescheduling of sorts. My feeling is that it needs to go 15 years further in terms of maturity and a cutting of interest rates by at least 1.5 percent,” Doukas said.
As personal incomes fall by 25 percent and youth unemployment increases to 55 percent, Doukas told CNBC, Greece faces its biggest hurdles yet and needed to pass reforms requested by the troika (the IMF, the European Central Bank, and the European Commission).
“We are at the bottom of the pile… We need to balance our budget, reform our banking system … there are a lot of reforms that need to be taken… the more we delay, the more things get dragged on.”
Doukas remained confident that the euro zone was firmly behind Greece and that Merkel’s visit signified European solidarity with Greece. Citing ECB President Mario Draghi’s announcement that the central bank would support secondary markets in their sovereign bond-buying scheme, Doukas said the euro zone was not willing to let Greece go, yet.
“It seems that Europe has determined that almost at any cost they will support the salvation of the euro and southern European countries,” he said.
—By CNBC.com’s Holly Ellyatt; Carolin Roth and Reuters contributed to this report from Athens.