Greece's finance minister promised Wednesday that the country would not default on its loans as the cost of insuring its bonds soared to the highest among the 16 nations that use the euro. George Papaconstantinou told reporters that he was trying to restore Greece's credibility after the country surprised credit markets by forecasting a massive 12.7 percent deficit this year - well above the 3 percent maximum fixed by EU budget rules. Greece will put forward in January a plan and a timetable to reduce the yearly budget gap to 9.1 percent next year by widening the tax base and making spending cuts, he said, describing “an uphill struggle” to get the economy back on track. He said speculation that Greece would not be able to pay back its borrowing was “completely unfounded” and there was “absolutely no risk to holders of government bonds.” Spreads on Greece's bonds - the cost of insuring them against the risk of not being repaid - overtook Ireland as the widest in the eurozone a month ago, even before markets were rocked by an announcement by Dubai's state investment company that it wanted to postpone debt payments. Papaconstantinou said Greece was “hit for a day after the Dubai story broke” when stock markets dropped 7 percent but they rebounded by the same amount the next day. “The battle with the markets is one that you win every day with a view to the credibility of your policy and this is what we are trying to build - credibility,” he said. Irish Finance Minister Brian Lenihan said his country was winning that battle because “Ireland is viewed by Europe has having taken effective action to control its finances.” He said Ireland expects this year's deficit to be lower than expected, coming in under 12 percent instead of the 12.5 percent it predicted earlier. Ireland plans to shave 4 billion euros - or 2 percent of economic output - from public spending next year in Tuesday's budget. “That should give some confidence to the international bond markets because that means that the Irish (deficit) position is superior to that of the United Kingdom as well as Greece,” Lenihan told reporters.
