ATHENS (MNI) – Greece is not alone in facing severe and
destabilizing fiscal pressure, Lucas Papademos, former European Central
Bank vice president, told an audience at a conference here today.

Papademos, a Greek national who stepped down from the ECB on May 31
and now works as an informal adviser to Greece’s Prime Minister George
Papandreou, painted a somber picture of the problems facing many major
countries in the world as a result of inflated deficits and debt that
will rise sharply in coming years unless drastic action is taken.

At the same time, he lauded Greece for the measures it is taking to
slash its public deficit and try to keep its already huge debt from
accelerating at an uncontrollable pace. Despite his plaudits for Greece,
he noted that the government could improve the implementation of some
aspects of its budget-cutting and structural reform package.

He also noted that the country’s efforts could be hindered by an
unfavorable global economic climate spawned by the very same problems in
other countries.

“As a result of the increasing and persisting fiscal imbalances,
the debt will rise in most euro area countries, the UK and the US. The
long-term prospects appear to be dramatic,” Papademos warned.

“The point that I would like to make is that the widespread
worsening of fiscal situations and prospects…underscores the
importance of the implementation of credible fiscal consolidation
policies in a timely manner,” he added.

“The fact that other countries face potential destabilizing fiscal
imbalances is not a source of comfort for Greece. On the contrary, it
suggests that Greece will have to address it problems within a less
favourable economic environment.”

Papademos had encouraging words for his own country, saying that
the draconian expenditure cuts and revenue measures implemented so far
are “courageous, significant and absolutely necessary.” He said the
actions taken are in line with what Greece has promised and should allow
the country to attain its deficit-cutting objective this year. “However,
the pace and effectiveness of the implementation of some measures can be
improved,” he said.

And, despite what he called “remarkable” progress in “such a short
period of time,” Papademos acknowledged the obvious — namely, that
financial markets “are not yet convinced that the [Greek] program will
be effectively implemented over the [planned] horizon. And this is
reflected in the CDS and bond spreads, as well in the suggestions that
debt restructuring is necessary or unavoidable.”

He noted the market’s concerns, including the risk of a greater
contraction in Greece’s economic activity, as well as political tensions
and social unrest “that would threaten the implementation of further
forms.” He also noted as a market worry the fact that Greece’s public
debt is projected to increase from about 115% of GDP to nearly 150% even
after the austerity program has been implemented.

“These concerns cannot be dismissed a priory,” Papademos said. “But
the significance of the risks and the attitude [about] the likelihood
they would materialise are overestimated.”

He said cited as particularly important steps the structural
reforms Greece is undertaking — in particular its reform of the pension
system, which he said “addresses both the medium- and the long-term
challenges of the pension system.”

He added: “The significance of these reforms has not been
significantly appreciated.”

Greece’s Finance Minister George Papaconstantinou, speaking at the
same conference, sought once again to reassure investors by
categorically ruling out any restructuring of Greek debt. “Any kind of
restructuring is undoable and unthinkable, and it’s not going to
happen,” he said.

–Angelika Papamiltiadou, a_papamiltiadou@hotmail.com

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