Greek rescue lowers interest costs
By Elena Becatoros |
April 13, 2010, Tuesday
|
Print Edition
Print Edition
GREECE'S borrowing costs dipped yesterday in positive early market reaction after eurozone countries filled in key details of a financial rescue aimed at quelling fears the heavily indebted country could default.
On Sunday, eurozone governments said they would make 30 billion euros (US$40 billion) in loans available to Greece this year if Athens asks for the money, while the International Monetary Fund will contribute another 10 billion euros.
The finance ministers of the 16 eurozone nations also agreed on a three-year financing formula that would mean a fixed interest rate of "around 5 percent," while the variable rate would be around 4 percent, officials said.
The rate is still above what IMF aid recipients usually pay. But it is less than markets had been demanding in recent days.
But the downward trend in Greek borrowing costs as markets opened yesterday will lead to relief in Athens, which has said it cannot go on paying the even higher interest rates demanded by jittery bond investors to loan the country money.
The hope is that the mere fact the loans are available will calm markets. That would let Greece borrow normally at acceptable interest rates by selling bonds.
The interest rate gap, or spread, between Greek 10-year government bonds and the German equivalent, considered a benchmark of stability, narrowed by more than 50 basis points to below 340 basis points, or 3.4 percentage points yesterday.
The narrower the spread, the lower the cost to borrow and the greater the confidence in Greece.
The promise filled in details of a March 25 pledge of joint eurozone-IMF help.
That pledge failed to calm investors because it omitted key details and imposed strict conditions that made the money difficult to get.
A French finance ministry official said that Sunday's accord was "necessary and satisfactory."
"Everyone is happy" with the deal, the official said, speaking on condition of anonymity. "And clearly the market has reacted positively," he added, noting the rebound in Greek bonds and the euro's strengthening versus the dollar.
While the plan could be activated as soon as Greece asks for it, Athens insists it prefers to borrow on the market rather than use the rescue.
On Sunday, eurozone governments said they would make 30 billion euros (US$40 billion) in loans available to Greece this year if Athens asks for the money, while the International Monetary Fund will contribute another 10 billion euros.
The finance ministers of the 16 eurozone nations also agreed on a three-year financing formula that would mean a fixed interest rate of "around 5 percent," while the variable rate would be around 4 percent, officials said.
The rate is still above what IMF aid recipients usually pay. But it is less than markets had been demanding in recent days.
But the downward trend in Greek borrowing costs as markets opened yesterday will lead to relief in Athens, which has said it cannot go on paying the even higher interest rates demanded by jittery bond investors to loan the country money.
The hope is that the mere fact the loans are available will calm markets. That would let Greece borrow normally at acceptable interest rates by selling bonds.
The interest rate gap, or spread, between Greek 10-year government bonds and the German equivalent, considered a benchmark of stability, narrowed by more than 50 basis points to below 340 basis points, or 3.4 percentage points yesterday.
The narrower the spread, the lower the cost to borrow and the greater the confidence in Greece.
The promise filled in details of a March 25 pledge of joint eurozone-IMF help.
That pledge failed to calm investors because it omitted key details and imposed strict conditions that made the money difficult to get.
A French finance ministry official said that Sunday's accord was "necessary and satisfactory."
"Everyone is happy" with the deal, the official said, speaking on condition of anonymity. "And clearly the market has reacted positively," he added, noting the rebound in Greek bonds and the euro's strengthening versus the dollar.
While the plan could be activated as soon as Greece asks for it, Athens insists it prefers to borrow on the market rather than use the rescue.
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