* Greece's debt its biggest problem during crisis
* Has no problem borrowing, although spreads too wide
* Expects GDP to grow about 1 percent in 2009
* Hopes to bring budget deficit below 3 pct of GDP in 2010
* EU stability pact should stay put
By Lefteris Papadimas and Dina Kyriakidou
ATHENS, March 23 (Reuters) - Greece's huge public debt is its biggest problem as the global crisis bites but the government has no problem borrowing and policy measures should narrow spreads in the future, its finance minister said on Monday.
He also forecast the Greek economy would grow by about one percent this year, above more pessimistic forecasts from the EU, and pledged to try to bring the budget deficit below 3 percent of gross domestic product by 2010.
Greece, watched by investors as one of the euro zone's weaker links, has seen spreads between its 10-year debt and German bonds widen to record limits on fears about its public finances.
On Friday a senior German lawmaker said euro zone states stood ready to come to the aid of fragile members of the bloc, highlighting Ireland and Greece, prompting the Greek prime minister to deny the need for any rescue package. [ID:nLK325468]
"The international crisis is the biggest since 1929, it's impossible to predict how long it will last and how deep it will be. Our country has certain problems from the past -- the biggest is the very high public debt," Finance Minister Yannis Papathanassiou told Reuters in an interview, his first to an international agency since taking over in January.
With debt at about 95 percent of its 250 billion euro economy, debt servicing costs Greece 12 billion a year, about 4 percent of GDP.
"The first impact is that we pay high spreads. I make clear there is no problem borrowing but of course we pay more," Papathanassiou said.
He said the country has already raised more than half of its 43.7 billion euro borrowing needs for the year and that spreads were too high -- about 260 basis points on Monday -- not reflecting economic fundamentals.
"We are determined to tidy up our finances and that is the fact that will narrow spreads. When markets see a government determined, despite any political cost, to take the right measures, as we are, then obviously confidence is raised and spreads shrink," he said.
OPTIMISTIC ON GROWTH
Papathanassiou predicted the economy would grow by about one percent in 2009, down from 2.9 percent in 2008, despite the global crisis and more pessimistic forecasts from the EU.
Although tourism, a main pillar of the economy, is expected to take a hit this year, he said the government is confident measures in place will pay off.
"We are optimistic that we will have a growth rate of about 1 percent in 2009, and not lower as some organisations predict. We believe we can achieve it," Papathanassiou said.
The EU has forecast Greek growth at 0.2 percent in 2009 and some international organisations even predict negative growth.
Greece recently announced a public sector wage freeze and one-off taxes on those making over 60,000 euros a year in an effort to shore up its budget.
European Union officials said the moves were not enough and more structural measures to deal with an ailing pension system and rampant tax evasion were needed.
Papathanassiou said the budget deficit would come to 3.7 percent of GDP this year, the same as in 2008, but gave a more positive outlook for 2010, saying Greece could do better than the originally projected shortfall of 3.2 percent.
He said the European Commission, which forecasts a 4.2 percent of GDP deficit for 2010, wanted Greece to bring its gap below 3 percent.
"So we are also setting a target, the same as the Commission, to go below 3 percent in 2010," Papathanassiou said. "We are taking measures on spending, on revenues, measures that are structural so that we have better revenues, such as taxing alcohol and cigarettes."
Greece has provided a 28 billion euro bank support package to inject liquidity but fiscal constraints have prevented a stimulus package like other countries.
"About one third of this package has been absorbed by banks so far," Papathanassiou said. "We will insist and push so that this money reaches the real economy."
He said the central bank had estimated credit expansion at 10 percent but with inflation falling -- between 1.5 and 2 percent this year -- the bank was considering cutting its forecast to a single digit. Some measures, such as accelerating the distribution of EU funds to small and medium size businesses, should help, the minister said. But tourism, the engine of the Greek economy, making up about 18 percent of GDP and employing one in five Greeks, still remained a big question mark.
"There are optimistic and pessimistic projections, I don't want to risk a prediction yet," he said, adding that last minute bookings and internal tourism may help the season.
Overall, Papathanassiou said he expected the euro zone countries to weather the crisis and saw no member at risk of defaulting on its debt. He said the stability pact, despite any agreed relaxation, should stay in place.
"Our aim must be, once the crisis is over, for all of us to once again be close to the numbers, the limits of the stability pact," Papathanassiou said. (Writing by Dina Kyriakidou, Editing by Toby Chopra)