Greece hasn’t asked to trigger EU aid package
Greece has no immediate plans to trigger the European Union rescue plan hammered out yesterday and will go ahead with planned debt sales.
European governments offered debt-burdened Greece a rescue package worth as much as €45bn at below-market interest rates as they try to restore confidence in the euro. Greek Prime Minister George Papandreou is hoping the agreement, which he called a “loaded gun on the table,” will halt a rise in borrowing costs, providing the government with time to implement its austerity plans.
“Our goal is, and we believe we can, to continue to borrow smoothly from the markets,” Finance Minister George Papaconstantinou told reporters yesterday. “The Greek government hasn’t asked for this mechanism to be activated, even though it is already immediately available.”
A senior finance ministry official in Athens said future developments in relation to the aid package from the Greek side would be determined by market reaction over the next few days. The country will sell €1.2bn in six-month and one- year Treasury bills tomorrow, in a test of investor confidence in yesterday’s pledge.
Greece needs to raise €11.6bn by the end of May to cover maturing bonds, and another €20bn by the end of the year to pay debt coupons and finance this year’s deficit. Greek officials plan a presentation to US investors later this month and a possible dollar-denominated bond sale.
Greek 10-year bond yields soared to 7.51pc on April 8, an 11-year high, according to Bloomberg generic prices, amid concern that Greece will be swamped by its bills. Euro-region finance ministers said they would offer as much as €30bn in three-year loans in 2010 at around 5pc. That’s less than the current three-year Greek bond yield of 6.98pc.
Another €15bn would come from the International Monetary Fund.
Papandreou, who has promised to bring the country’s shortfall to below the 3pc. European Union limit by 2012, has struggled to convince investors that spending cuts and tax increases are enough to reduce the deficit by more than 4 percentage points this year to 8.7pc of GDP.
Fitch Ratings shaved Greece’s debt rating to BBB-, one level above junk, on April 9, saying the fiscal challenge was heightened by increased interest costs and slower growth.
The combination of higher taxes and lower spending and salary cuts for public workers has prompted strikes and protests against Papandreou, a socialist elected in October on promises of raising wages. Opposition party politicians have been critical of the government’s handling of the crisis and of the possible involvement of the IMF, which could mean new and tougher measures.
Leftist party Syriza said in a statement yesterday the aid package was driving Greece “into the embrace of the IMF” and would mean the dissolution of the country’s pension system and labour laws. Antonis Samaras, the leader of the main opposition party New Democracy said neither the economy nor Greeks could tolerate more austerity measures.
“We say no to stricter measures,” Samaras said. “And we oppose those which create the vicious circle of recession.”
European governments would put up about two thirds of any aid, with the IMF chipping in the rest. Greek, EU and IMF officials will meet today to discuss details.