Greece to be classed as emerging market

 
Ben Southwood
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FTSE

FTSE yesterday said it was considering downgrading Greece to emerging market status, while separate reports said that the IMF could turn off its aid tap until the country restructures its debt mountain.

Index provider FTSE has not yet reclassified Greece, but moved the beleaguered Eurozone member to its watch list to consider demoting it to the “advanced emerging” classification – where Taiwan and Poland currently sit.

This news came in tandem with a report from the Greek Skai TV channel that the IMF was considering withholding its next bailout payment to Greece until its coalition government decides on the restructuring of its huge national debt.

Skai said it based its report on an interview with an official on the IMF’s administrative board. This IMF official also suggested its role is to maintain short-term flows, not sustain solvency in the long-run.

“The role of the fund is the temporary provision of liquidity, not the role of being the indefinite lender,” he said, going on to predict the IMF would have finished giving Greece financial support by the end of 2013.

But even a continuation of the current aid would rely on Greek lawmakers deciding how debt would be brought down to 120 per cent of GDP by 2020, Skai reported.

This will be a massive blow to Greece, which yesterday put a number on the extra cash it would need if allowed extra time to bring its finances into order.

Finance minister Yannis Stournaras said a two year extension to the bailout plan would cost between €13bn (£10.4bn) and €15bn.

Deputy finance minister Christos Staikouras said Greece may ask the European Central Bank (ECB) to roll over its outstanding Greek bonds, in a document released yesterday but dated 19 September. He said this could help the embattled country close the gap opened by weaker than privatisation revenues.

But top ECB official Jörg Asmussen told German newspaper Die Welt that the bank could not legally participate in such a debt restructuring. “[Rolling over bonds] would constitute state financing, which is forbidden,” Asmussen told the paper.