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Russia Expects Greece To Fall Short On Obligations June 21, 2010

Posted by Yilan in Russia, Yunanistan.
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Markets are prepared to accept a default on Greek debt, Russian Finance Minister Alexei Kudrin said Saturday, even as international financial organizations said the euro zone’s weakest member was on track in reforming its economy.

Kudrin also said he doubted the U.S. government’s ability to make necessary cuts in its budget deficit.

Greece will probably have to restructure part of its government debt, a process that may be “unpleasant” for the country, Kudrin told a panel on sovereign debt at the St. Petersburg International Economic Forum.

“Any restructuring of Greek debt will be acceptable to markets, as long as it’s not deep and does not involve confiscation of assets,” said Kudrin, one of the longest standing members of Putin’s government. “You can call it a mini-default–not exactly a default in the fullest sense of the word.”

Russia holds some 40% of its $400 million-plus reserves–the world’s third largest–in euros, and the ruble fell by as much as 9.5% since May as European debt woes roiled markets. The country was faced with its first budget deficit in nearly a decade last year as the financial crisis ended an eight year-long oil-boom, and hopes to again balance its budget by 2015.

Kudrin praised European governments and central banks for consolidating their economic policy to fight the crisis and “prevent the situation from deteriorating.”

“I believe in Europe, I believe in the euro,” Kudrin said.

The European Union, International Monetary Fund and European Central Bank provided Greece with a three-year, 110-billion euro loan in May, but demanded that the country hike taxes and cut wages and pensions to bring its budget deficit from 13.6% of gross domestic product in 2009 to 8.1% of GDP this year. Representatives of the three financial institutions said this week that Greece was on track with the reforms.

Russia’s low sovereign debt and large foreign reserves have given the country’s foreign bonds–which it issued in April for the first time in 12 years–a lower yield than those of Greece or other troubled Eurozone countries like Spain or Portugal.

The average monthly spread between Greek and German 10-year bond yields was above 6% on Friday.

Not all of the members of the panel agreed with Kudrin, however.

“We have a program that does not contemplate any restructuring,” said John Lipsky, deputy managing director of the IMF.

On the U.S., Kudrin called the country’s plan to cut its budget deficit from 10% of GDP to 3% “extremely ambitious.”

“It’s difficult to believe this plan can actually be realized,” Kudrin said. “Achieving this would be a significant change, one without precedence.”

Speaking at the same conference session, Deutsche Bank AG (DB) Chief Economist Peter Hooper III echoed Kudrin’s concerns, saying that it was “amazing” that the U.S.has been able to issue 10-year treasuries at interest rates not much higher than 3%.

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