Greece debt deal boosts euro value
 | EURO V US DOLLAR Last updated: 13 Apr 2010, 23:56 UK  *Chart shows local time
 |
The euro has jumped sharply against the dollar and the pound after the eurozone agreed details of a multi-billion euro loan package to debt-ridden Greece.
The euro rose by 2 cents, or 1.5%, against the dollar, to $1.3672, before slipping slightly. Against the pound, it rose by 0.75p to 88.45p.
Eurozone nations have agreed to provide up to 30bn euros ($41bn; £27bn) in the first year of a three-year package.
Greece hopes it will not have to ask for the emergency loans.
Instead, it hopes that an extensive package of austerity measures will help to cut its debt levels and restore confidence in Greek government debt.
This would mean it could raise money itself, rather than relying on financial assistance from the eurozone and the International Monetary Fund (IMF), which is also contributing to the 30bn-euro loan package.
|   I suspect that many investors will still look at the state of the economy and the public balance sheet and conclude that, sooner or later, Greece's time is going to run out  Stephanie Flanders, BBC economics editor |
As a result of the deal, the yield on Greek government bonds fell sharply on Monday, reflecting the fact that investors now view the bonds as less risky.
The yield is the return investors receive on government debt - in other words the compensation they get for taking on the risk of the government defaulting on its debts.
The yield on three-year bonds fell from more than 7% on Friday to 6.1% in early trading.
Raising money
The loan deal comprises a three-year financing programme at interest rates of about 5%, based on IMF formulas.
An exact interest rate for the loans will only be finalised if Greece formally requests help.
The rate is less than the rate the Greek government would have to pay to raise money on the open market.
Luxembourg Prime Minister Jean-Claude Juncker said there were no elements of subsidy in the loan offer.
Greece has to find about 11.5bn euros ($15.7bn; £10.2bn) by next month to meet its financial obligations. Its total debt stands at nearly 300bn euros.
It intends to auction a 1.2bn-euro package of treasury bills on Tuesday.
|  In Greece, this is increasingly being portrayed as a battle with speculators Gavin Hewitt, BBC Europe editor |
"The amount and reiteration of support may well be enough for the markets to continue funding Greece as, in the short term, the immediate impact is to remove the prospect of a Greek default," said Gary Jenkins at Evolution Securities.
However, some observers said the loan package might not be enough to solve Greece's debt crisis.
"In the short term, this gives the Greek government breathing space," Yanis Varoufakis, professor of economics at the University of Athens, told the BBC.
"But I think that it will become very clear, very soon, that, in the medium term, the problem is going to resurface."
He pointed out that the German government, which would provide the lion's share of the 30bn euros should it be needed, can borrow money on the open market at 3%, and then lend it to Greece at 5%.
"In the long term, instead of this representing a bail-out, it will represent a net transfer of wealth from Athens to Berlin."
Continuing doubts
The eurozone was forced to act after its initial proposal of a 22bn-euro support package agreed last month failed to convince investors that Greece would be supported fully by its partners.
The latest offer is simply a more detailed, beefed-up version of the original package.
| EURO V POUND STERLING Last updated: 13 Apr 2010, 23:56 UK  *Chart shows local time
|
In recent weeks, the euro has weakened and the rate at which the Greek government borrows money on the international capital markets has increased.
Although Greece has maintained it does not plan to turn to its eurozone partners and the IMF for any loans, investors believe it will have little choice.
The country has struggled for months to lower its borrowing costs, and investors remained unconvinced that the Greek government's programme of spending cuts and tax rises, which have proved deeply unpopular at home, will be enough to restore confidence in the country's ability to repay its debts.
On Friday, ratings agency Fitch downgraded Greek government debt by two notches, from BBB+ to BBB-.
The BBB- rating is significant, as this is the lowest rating that qualifies as an investment grade bond. Any further downgrade would mean Greece losing its investment grade status with Fitch.
If the two other major credit rating agencies, Standard & Poor's and Moody's, were to follow Fitch's lead, then a lot of big institutional fund managers, such as pension funds, would not be allowed to invest in Greek debt.
Greece is currently rated BBB+ by Standard & Poor's and A2 by Moody's.
Much will now depend on Greece's efforts to raise money this week. If it struggles to raise the 1.2bn euros it wants to, then confidence in the country's ability to repay its debts could take another dive.
Tidak ada komentar:
Posting Komentar