Papaconstantinou Tells Investors Don’t Attack Greece (Update1)

By Theophilos Argitis and Mark Deen – Bloomberg

April 25 (Bloomberg) — Greek Finance Minister George Papaconstantinou told investors they will “lose their shirts” if they bet cash-strapped Greece will default, as his government moved toward securing emergency aid before debt payments come due in mid-May.
Speaking to reporters in Washington, where he’s negotiating terms for a three-year loan package with the International Monetary Fund and European governments, Papaconstantinou expressed confidence the talks will be “concluded rather soon” and said his country wouldn’t restructure its debt.
With 8.5 billion euros of Greece’s bonds maturing May 19, finance chiefs want a swift agreement amid concern any delay may trigger a further sell-off in its assets and hurt global markets. Debt totaling 115.1 percent of gross domestic product and a budget deficit of almost 14 percent have investors doubting Greece can fund itself, forcing it last week to seek a lifeline of as much as 45 billion euros ($60 billion) this year.
“The IMF, the European partners and everyone involved in the financing effort recognizes the need for speed,” IMF Managing Director Dominique Strauss-Kahn said in a statement today. “I am confident that we will conclude discussions in time to meet Greece’s needs.”
Crisis Not Over
Even with the first bailout of a euro-area member approaching, financial markets are signaling concern that Greece’s fiscal crisis may still not be near an end. A rebound in Greek bonds after the government’s request for support on April 23 fizzled out, pushing the yield on the two-year note to 10.23 percent after it dropped to 9.63 percent. Investors demand Greece pay almost triple what they charge Germany for its 10- year bonds.
“We are not buying Greek debt while so many problems remain unsolved,” said Ralf Ahrens, who holds Greek bonds as part of about $20 billion he manages as head of fixed-income at Frankfurt Trust. “Asking for the package will not calm down the market.”
Left unsaid so far is what aid Greece may receive beyond this year and what further austerity measures it will have to sign up to, sparking concern about how the country will finance itself beyond 2011. Germany’s government, which would be the biggest euro-area donor to the package, must also pass legislation before it can dispense cash.
Close to Wire
“The whole thing is moving terribly close to the wire,” Erik Nielsen, chief European economist at Goldman Sachs Group Inc., said in a report to clients today from Washington. A deal is needed by around May 6 so aid can be delivered before debts came due, he said.
While Nielsen said he sees an “overwhelming probability” that the government may cut or delay payments to bond investors, Papaconstantinou said such talk is a “red herring” and a restructuring is “off the table.” He reiterated Greece will not leave the euro-area.
Canadian Finance Minister Jim Flaherty told reporters in Washington yesterday that some Group of 20 countries, including in Europe, worry the aid plan is “not enough” and want to ensure any rescue is a “one-time event.”
Greek Prime Minister George Papandreou must also navigate domestic opposition after unions and political rivals slammed him for turning to the lender, criticized in the past by Asian and Latin American nations for demanding too much. Strauss-Kahn said yesterday Greek citizens “shouldn’t fear the IMF.”
Contagion Downplayed
European Central Bank officials in Washington played down speculation that Greece’s woes could spill over to other high- deficit countries such as Spain or Portugal. “There is no economic cause for a contagion discussion,” ECB Governing Council member Ewald Nowotny said in an interview. “It is, in my view, really something that is a kind of game played by speculation.”
Greece’s fiscal woes eclipsed all other discussions at the spring meetings of the International Monetary Fund and World Bank. Finance ministers from other countries differed over the risk posed by the turmoil to the global economic recovery.
Brazilian Finance Minister Guido Mantega said it “is not big enough to threaten” the rebound. U.K. Chancellor of the Exchequer Alistair Darling said “as long as this problem is allowed to continue to smolder, it will hold back peoples’ confidence in the ability of Europe to come through the recession.”
Bank of Canada Governor Mark Carney said Greece’s fiscal mess served as a warning to other governments to regain control of their budgets. “What we’re seeing with Greece, and we’ve been seeing in the last few weeks, are the indications of the limits with fiscal stimulus,” he told reporters