Greek debt managers, bankers and economists voiced relief on Friday at moves by European Union leaders and the European Central Bank to rescue the country from the threat of a sovereign default.
The EU decision on a “last resort” financial package including assistance from the International Monetary Fund would help reduce Greece’s high borrowing costs – provided its fiscal consolidation effort stayed on track, they said.
“The agreement in Brussels eliminates the risk of default and raises the government’s credibility, since our European partners are prepared to give practical support to our efforts,” said Petros Christodoulou, head of Greece’s debt management agency.
“We would like to return to the markets within March,” Mr Christodoulou said.
Spreads on Greek 10-year bonds over their German equivalent retreated on Friday by about 20 basis points in early trading.
Greece needs to raise €11.5bn on international markets by the end of April to refinance maturing debt and make interest and coupon payments, and another €10bn within May.
It has a cushion of €8bn, following two syndicated bond issues this year at interest rates almost twice those of Germany, the benchmark eurozone issuer.
A syndicated bond issue due to be launched last week was postponed amid nervousness on markets over a Greek threat to go directly to the IMF for an emergency loan.
Under the deal reached in Brussels, Greece would only seek help from its European partners if it were unable to refinance its large public debt – projected to reach more than 120 per cent of gross domestic product this year – on international capital markets.
“I think the government will try to avoid using the package… the agreement gives it a breathing space to show progress with implementing the fiscal programme,” said Platon Monokroussos, a senior economist at EFG Eurobank.
“Spreads are already coming down…some systemic risk has been effectively removed from current pricing and this is a positive development,” Mr Monokroussos said.
The ECB’s move on Thursday to extend its current liquidity arrangements into 2011 came as a welcome surprise to Greek bankers.
Athens-based banks faced a growing liquidity squeeze because the country’s debt crisis has curtailed lending to local businesses and limited their capacity to buy government bonds.
“The ECB’s unexpected action relieves the pressure on Greek banks that are the biggest holders of Greek debt,” said Yiannis Stournaras, director of IOBE, an Athens think tank.
“But it will also have a positive impact for other eurozone banks that also hold large amounts of Greek government bonds,” he added.
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