Tweet
http://www.reuters.com/article/idUSLDE60P2BO20100126
What is the likelihood that Greece will default on these bonds? Six percent is not quite enough to convince me to take my money out of CDs, but it is getting close.
WRAPUP 2-Greece plans more costly bonds while markets keen
* Greece to issue another bond in February
* IMF chief says Greece needs political will to change
* Foreign investors bought most of 5-year bond
(Updates with comments, costs of bond issue, scandal probe)
By George Georgiopoulos and Lefteris Papadimas
ATHENS, Jan 26 (Reuters) - Greece said on Tuesday it will sell more bonds in February, emboldened after its first debt issue of the year was heavily oversubscribed, but the high price will raise pressure for unpopular spending cuts.
Strong uptake for Monday's 8 billion euro bond soothed immediate concerns about Athens' ability to finance itself in the short term, despite market scepticism of its plan to slash its huge budget deficit over the next three years.
But the decision to issue another bond next month could prove costly as the returns now demanded by investors to hold Greek debt are hefty.
"The increase in the cost of borrowing worries me because an increase of 50 basis points means an increase of about 250 million to 300 million euros for Greece," said Gikas Hardouvelis, an economist at EFG Eurobank.
The head of the Greek Public Debt Management Agency, Spyros Papanicolaou, told Reuters the country planned a 10-year bond in February, of up to five billion euros. "The final amount will be determined by the market response," he said.
The Socialist government, which inherited a fiscal mess that has hit Greece during its first recession in 16 years, was heartened by investor demand for the bond sold on Monday -- which at 25 billion euros ($35.35 billion) was equivalent to nearly half the country's full-year financing needs.
But while giving the country a funding respite, the bond was priced at a large premium -- at a yield of 6.1 percent compared to a similar bond issued in April at 5.5 percent.
Monday's issue also highlighted Greece's reliance on foreign investors. A banking source told Reuters 78 percent of the bond was bought by foreign investors.
DRAMATIC MANNER
Hardouvelis said he believes the government will cope with rising borrowing costs this year, adding: "The key issue is to move forward with significant spending cuts to reduce the budget deficit by 4 percentage points (in 2010)."
David Riley, head of sovereigns at Fitch rating agency, said the Greek bond issue had shown that governments now have to pay dearly to finance themselves.
"The era...of exceptionally low borrowing costs is probably or likely coming to an end," Riley told Reuters in an interview. "Obviously in the case of Greece that comes to an end in a very dramatic manner."
The European Union and rating agencies have raised pressure on Athens to put its fiscal house in order but analysts fear efforts to do so could be undermined by social opposition.
The government has launched a plan to cut the budget deficit to below 3 percent of gross domestic product by the end of 2012 from 12.7 percent last year through welfare cuts, tax reforms, improved revenue collection and savings on public sector wages.
Opinion polls show the public is willing to pay a price to overcome the crisis as long as measures are perceived as fair and those involved in graft are punished. On Tuesday, the ruling Socialists launched a parliament investigation into scandals that brought down the former conservative government.
POLITICAL WILL TO CUT SPENDING?
The head of the International Monetary Fund, Dominique Strauss-Kahn, said the Greek economy is at a "crucial crossroads and needs to restore its credibility".
"All depends on the political will," he said. "I am confident that the Greek economy's current crisis can be overcome, but with deep changes at all levels."
The main public and private sector unions plan one-day strikes in February and farmers have been protesting for more than a week, blocking roads and border crossings to EU fellow member Bulgaria, to demand higher prices for their produce.
The euro has fallen against the dollar this month partly due to the Greek debt crisis, which has thrown the spotlight on other weak euro members such as Portugal, Ireland and Spain.
European Central Bank Executive Board member Juergen Stark warned on Tuesday that high public deficits could bring further ratings downgrades of euro zone countries.
"In some countries 2009 deficits are expected to be in double digits," Stark said in a speech at a real estate sector conference. "Thus, further country ratings and further negative reaction in the financial markets cannot be excluded."
Investors are closely watching Portugal's government as it announces on Tuesday steps to cut its budget deficit when it presents its 2010 budget bill.
OECD chief Angel Gurria dismissed suggestions that fiscal crises in peripheral euro zone member states could force them out of the single currency, saying he expected pressure on Greece to subside.
"No, I don't see that danger," he said, when asked about strains leading to a break up of the euro. "There are no conditions that could justify that assumption."
The euro bounced on Monday after Greece's debt auction but was lower on Tuesday as investors moved out of the euro after China implemented a planned increase in required reserves for some banks, unnerving investors.
Greek markets were also lower on Tuesday after rising on relief from Monday's bond issue. Greek banking stocks were 2.6 percent lower while the premium demanded to hold its 10-year bond compared with German Bunds was up at 301 basis points.
* Greece to issue another bond in February
* IMF chief says Greece needs political will to change
* Foreign investors bought most of 5-year bond
(Updates with comments, costs of bond issue, scandal probe)
By George Georgiopoulos and Lefteris Papadimas
ATHENS, Jan 26 (Reuters) - Greece said on Tuesday it will sell more bonds in February, emboldened after its first debt issue of the year was heavily oversubscribed, but the high price will raise pressure for unpopular spending cuts.
Strong uptake for Monday's 8 billion euro bond soothed immediate concerns about Athens' ability to finance itself in the short term, despite market scepticism of its plan to slash its huge budget deficit over the next three years.
But the decision to issue another bond next month could prove costly as the returns now demanded by investors to hold Greek debt are hefty.
"The increase in the cost of borrowing worries me because an increase of 50 basis points means an increase of about 250 million to 300 million euros for Greece," said Gikas Hardouvelis, an economist at EFG Eurobank.
The head of the Greek Public Debt Management Agency, Spyros Papanicolaou, told Reuters the country planned a 10-year bond in February, of up to five billion euros. "The final amount will be determined by the market response," he said.
The Socialist government, which inherited a fiscal mess that has hit Greece during its first recession in 16 years, was heartened by investor demand for the bond sold on Monday -- which at 25 billion euros ($35.35 billion) was equivalent to nearly half the country's full-year financing needs.
But while giving the country a funding respite, the bond was priced at a large premium -- at a yield of 6.1 percent compared to a similar bond issued in April at 5.5 percent.
Monday's issue also highlighted Greece's reliance on foreign investors. A banking source told Reuters 78 percent of the bond was bought by foreign investors.
DRAMATIC MANNER
Hardouvelis said he believes the government will cope with rising borrowing costs this year, adding: "The key issue is to move forward with significant spending cuts to reduce the budget deficit by 4 percentage points (in 2010)."
David Riley, head of sovereigns at Fitch rating agency, said the Greek bond issue had shown that governments now have to pay dearly to finance themselves.
"The era...of exceptionally low borrowing costs is probably or likely coming to an end," Riley told Reuters in an interview. "Obviously in the case of Greece that comes to an end in a very dramatic manner."
The European Union and rating agencies have raised pressure on Athens to put its fiscal house in order but analysts fear efforts to do so could be undermined by social opposition.
The government has launched a plan to cut the budget deficit to below 3 percent of gross domestic product by the end of 2012 from 12.7 percent last year through welfare cuts, tax reforms, improved revenue collection and savings on public sector wages.
Opinion polls show the public is willing to pay a price to overcome the crisis as long as measures are perceived as fair and those involved in graft are punished. On Tuesday, the ruling Socialists launched a parliament investigation into scandals that brought down the former conservative government.
POLITICAL WILL TO CUT SPENDING?
The head of the International Monetary Fund, Dominique Strauss-Kahn, said the Greek economy is at a "crucial crossroads and needs to restore its credibility".
"All depends on the political will," he said. "I am confident that the Greek economy's current crisis can be overcome, but with deep changes at all levels."
The main public and private sector unions plan one-day strikes in February and farmers have been protesting for more than a week, blocking roads and border crossings to EU fellow member Bulgaria, to demand higher prices for their produce.
The euro has fallen against the dollar this month partly due to the Greek debt crisis, which has thrown the spotlight on other weak euro members such as Portugal, Ireland and Spain.
European Central Bank Executive Board member Juergen Stark warned on Tuesday that high public deficits could bring further ratings downgrades of euro zone countries.
"In some countries 2009 deficits are expected to be in double digits," Stark said in a speech at a real estate sector conference. "Thus, further country ratings and further negative reaction in the financial markets cannot be excluded."
Investors are closely watching Portugal's government as it announces on Tuesday steps to cut its budget deficit when it presents its 2010 budget bill.
OECD chief Angel Gurria dismissed suggestions that fiscal crises in peripheral euro zone member states could force them out of the single currency, saying he expected pressure on Greece to subside.
"No, I don't see that danger," he said, when asked about strains leading to a break up of the euro. "There are no conditions that could justify that assumption."
The euro bounced on Monday after Greece's debt auction but was lower on Tuesday as investors moved out of the euro after China implemented a planned increase in required reserves for some banks, unnerving investors.
Greek markets were also lower on Tuesday after rising on relief from Monday's bond issue. Greek banking stocks were 2.6 percent lower while the premium demanded to hold its 10-year bond compared with German Bunds was up at 301 basis points.
Comment