Alexa

Stung by costly loans, Greece finds hard-won EU plan hollow

Stung by costly loans, Greece finds hard-won EU plan hollow

Greece fought for months to get EU help to tackle its mounting debt crisis but it has taken only days for fresh doubts to emerge on the deal and the country's ability to put its finances in order.
Greece finds it still has to pay a high and rising price to secure crucial funding on the international markets to roll over debt - let alone pay it down so as to relieve the strains on the economy and the broader eurozone.
The March 18-19 accord with the European Union was supposed to convince the markets that Greece would not be allowed to fail and accordingly would be a better credit risk, deserving lower rates of interest on its debt.
As the interest rates or yields fell, Athens would have more money available to pay off its overall debt and reduce a budget deficit which last year was more than four times the EU limit.
Hugely unpopular spending cuts would also help improve the public finances.
If that was the plan, however, it has not worked so far.
"The biggest hurdle for the Greek government is to get its borrowing done at a decent yield (interest rate)," GFT analyst David Morrision told reporter.
"They (want) ... yields similar to Germany's, around three percent, rather than the six percent-plus the market is demanding," Morrision added.
The 10-year Greek government bond on Thursday was yielding 6.529 percent, up sharply from 6.333 percent on Friday the previous week after Brussels announced the accord, which also provides for International Monetary Fund involvement.
The difference, or spread, between Greek and German 10-year bond yields has steadily widened, hitting 342 basis points on Thursday, up from 321 points on Monday.
"The high spreads reflect the insecurity caused to investors by our country's high debt and credibility deficit," Greek Finance Minister George Papaconstantinou told the Imerisia financial daily on Thursday.
The minister insisted that "the government's aim is to never to have to activate" the EU support mechanism, which analysts have deemed "opaque" and sorely lacking in detail.
Talk of an IMF rescue - which would be the first to involve a eurozone member - could have actually impaired the country's efforts to drive down its borrowing costs, the Greek debt agency chief suggested.
"Had there not been any talk of the IMF and support packages we would have been left alone in peace and been able to issue (bonds) and have a proper and well functioning market," debt agency chairman Petros Christodoulou told CNBC.
The government has warned that its plans to pull the country out of a deepening recession where the economy is expected to shrink by at least two percent this year could be compromised by higher debt repayments.