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January 29, 2013 6:25 pm
The worst of Greece’s crisis is over, its central bank governor has said, as Greek 10-year government bond yields dropped below 10 per cent for the first time in more than two years.
The vast majority of Greeks believe that an exit from the eurozone is “not any longer on the table, which means improved confidence,” George Provopoulos told the Financial Times in London, where he met UK-based bankers. Greece’s public finances and competitiveness had also improved – while funds were flowing back into Greek deposit accounts.
Greece’s economy faces another brutal year. Unemployment has hit 26 per cent of the workforce and gross domestic product is expected to contract by 4 per cent or more this year.
But Mr Provopoulos said: “What is important is that, although GDP continues to contract, confidence is steadily improving.” Even at the tensest moments, the stability of the banking system had been preserved, with not a single depositor suffering a loss. “We have seen the worst in my country. We have turned the corner.”
By June last year Greek banks had seen deposits drop by €87bn. In the second half of the year, €15bn had returned, mainly from “under the mattresses” of Greeks, and Mr Provopoulos expected “another €15bn over the next year-and-a-half from this source alone”. Some funds had also returned from overseas, he added.
Bond yields have fallen sharply in Spain, Italy, Portugal and Ireland as well as Greece after European Central Bank pledges last year to preserve the integrity of Europe’s monetary union. Investors’ increasing conviction that Greece will stay in the eurozone, as well as a generous bond buyback funded by the eurozone, has sent the price of Greek bonds soaring and Athens’ implied 10-year borrowing costs below 10 per cent for the first time since October 2010.
The 10-year Greek bond yield dipped briefly to 9.998 per cent by mid-morning on Tuesday in London, before settling at 10.07 per cent by late afternoon – equal to a price of 56.1 cents on the euro.
The Athens stock market has also enjoyed a positive start to the year, rallying almost 11 per cent, taking gains since June to 111 per cent.
But even if Greece is enjoying a break from the sustained gloom of the past three years and the risk of social upheaval appears to be receding, plenty of challenges lie ahead. The EU and International Monetary Fund are pressing harder than ever for a serious crackdown on tax evasion estimated to cost the government €30bn annually in lost revenues.
Athens is also under pressure to step up privatisations. It has been asked to raise €2.6bn this year from sales of state-controlled companies and property. If revenues fall behind target, the shortfall will have to be made up through immediate spending cuts. Meanwhile, completion of a much-delayed €50bn recapitalisation of Greece’s four largest banks may have to be postponed by another two months until June, which could further delay an economic recovery.
Mr Provopoulos said confidence in Greece had been boosted by eurozone politicians’ push for greater European integration. “Some of us would like to see even bolder and faster progress in this direction, but the political process takes time.”
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