Markets squeeze Greece even harder as rescue talks begin
Published 22/04/2010 | 05:00
INTEREST rates on Greek government debt soared above 8pc yesterday as talks began in Athens on a rescue package of cheaper loans for the country.
The unprecedented 8.4pc market rate reflected the fact that traders are unwilling to buy Greek bonds until the terms and details of any rescue package have become clear.
But, as the International Monetary Fund (IMF) warned of the danger of "contagion" from the Greek crisis, yields on Portuguese government debt rose by more than a tenth of a per cent, reaching 4.74pc on 10-year debt.
Portugal has now firmly replaced Ireland as the euro country with the second highest borrowing costs.
Market rates have risen by 0.9 percentage points in the past six months, while Ireland's have fallen by 0.27 points.
Greek finance minister George Papaconstantinou began talks with representatives of the European Commission, the European Central Bank and the IMF yesterday.
At the same time, hundreds of dock workers blocked passenger vessels at Greece's largest port, Piraeus, in protest at the austerity measures already in place. About half-a-million Greek civil servants are planning to stage another 24-hour strike today.
Mr Papaconstantinou said the talks, which are meant to lay out a three-year plan to reduce Greece's budget deficit, would last two weeks and a text of the programme would be decided by May 15 at the latest.
Economists and the Greek media have speculated that the government could ask to trigger the aid package before the final decisions -- perhaps even this weekend, when Mr Papaconstantinou attends the IMF's annual meeting in Washington.
In Germany, finance minister Wolfgang Schaeuble said the government expected Athens to make a formal request for the aid.
The market interest rates suggest Athens could not raise the €10bn it needs next month to cover the budget deficit and replace an €8.5bn bond due for repayment on May 19.
French finance minister Christine Lagarde said her country could provide €3.9bn this fiscal year out of the €6.3bn that Paris has pledged towards the total €30bn of loans for Greece.
She said French loans to Greece for three years would have a 5pc interest rate, as compared with the 8pc currently demanded by the markets.
German economy minister Rainer Bruederle said IMF loans in the package could amount to €12bn.
However, a deal could be delayed by the opposition of the Social Democrats and a forthcoming regional election in Germany, where helping a country widely seen as flouting EU budget rules is unpopular.