News and Finance

Greece won’t default on its debt or abandon Europe’s single currency, said Luxembourg’s Jean-Claude Juncker, who heads the group of euro-area finance ministers.

“Two things won’t happen: Greece won’t go bankrupt; but it has to make enormous efforts,” Juncker said at a press conference in Luxembourg today. “The second point is that the hypothesis that a country will leave the eurogroup or euro zone is not a question. It’s absurd.”

Greece today presented the European Commission with a three-year budget plan that includes more than 10 billion euros ($14.4 billion) in deficit-reduction measures for this year to bring down Europe’s biggest budget shortfall. Concern about the deficit led rating companies to downgrade the country’s debt last month, sparking a rout in its bonds.

The government’s budget proposals for this year are “a right step in the good direction, but it’s in need of additional reductions,” Juncker said.

The cost of insuring against a Greek default rose 2 basis points today to 340 points, near the record 344.5 basis points set yesterday, CMA prices show. Greece’s benchmark 10-year bond gained, snapping three days of declines and narrowing the premium investors demand to hold the debt instead of benchmark German bunds to 272 basis points from more than 277 earlier, which matched a 10-month high on Dec. 21.

Greece’s Creditworthiness

“If financial markets are of the impression that Greece can tackle its budget deficit there would also be another valuation of Greece’s creditworthiness,” Juncker said.

Concern about Greek finances is weighing on the euro, which dropped 0 guaranteed online personal loans.84 percent to $1.4378, the biggest decline since Dec. 17. The Greek deficit plan didn’t do enough to convince investors that the government could rein in the shortfall, Themistoklis Fiotakis, a London-based analyst at Goldman Sachs, wrote in a research note today.

The plan “still leaves a number of sources for uncertainty, which could aggravate a nervous market,” Fiotakis wrote. “Part of the euro underperformance can be linked back t the evolving pressures around Greece’s fiscal challenges.”

Leaving the euro region would “cause unmanageable problems for a country,” Juncker said. European Central Bank President Jean-Claude Trichet yesterday also called the notion of Greece leaving the euro “absurd.”

The so-called eurogroup of finance ministers from the 16 nations using the euro will discuss Greece at a meeting on Jan. 18 in Brussels.

‘Important Steps’

“We will on Monday, as we have done for a few months already, alert the Greek authorities that they have to put forward a credible re-consolidation plan of their public finances,” Juncker said. “Greece has taken important steps in this direction; more have to follow.”

Greece shouldn’t count on its European allies to bail the country out if its finances deteriorate, Juncker said. “It would be wrong to imagine or let Greece believe that the other countries could solve the problems for Greece,” he said.

Juncker says that the Maastricht Treaty that led to the creation of the euro bars any bailout of a member state.

Source