Greek borrowing costs soar to new highs April 21, 2010Posted by Yilan in EU, European Union, Yunanistan.
Tags: EU, George Papandreou, Greece, Greece Debt, IMF
Greece’s prime minister George Papandreou is now facing an economy with the highest unemployment level in six years. Photograph: Francois Lenoir/Reuters
Greek borrowing costs soared to new highs today as traders speculated that the talks with the IMF and European Union officials due to begin tomorrow might go badly.
Although the country found buyers for €1.95bn (£1.3bn) of 13-week Treasury bills, it will pay a yield of 3.65%. That is a record high for any eurozone nation and a sharp increase on the 1.67% yield Greece paid in January when it last auctioned this type of short-term debt.
However, the Greek finance minister, George Papaconstantinou, said the sale meant that Greece’s remaining borrowing requirements for May are below €10bn.
“There is no chance that Greece will be left high and dry in May,” he said. “Greece will borrow either from the markets or from its partners.”
As IMF and EU officials gathered in Athens for talks on a €15bn loan, concern over the fragility of the Greek economy deepened after unemployment hit a six-year high of 11.3% in January, up from 10.2% in December.
Unemployment has risen sharply across the eurozone in recent months, hitting 10% at the end of March.
Analysts said the spike in unemployment raised fresh questions about Greece’s economic recovery plan. The prime minister, George Papandreou, is attempting to rebuild the Greek economy through an austerity plan of lower public spending and higher taxes. Rising unemployment makes this task even harder.
IMF chief economist Olivier Blanchard told the Le Monde newspaper: “Greece must tighten its belt to pull itself out of the trouble it got itself into. But lending it rescue funds at high interest rates doesn’t make sense, because it would make a recovery impossible.”
There is concern within Greece that the IMF may demand even deeper cuts in public spending than Papandreou had planned, along with the privatisation of some state-owned assets and widespread job cuts in the public sector.
The eurozone has agreed to lend Greece €30bn, which is separate from the €15bn the IMF may advance. However, it has emerged that a member of the European Central Bank’s governing council predicted the country could need as much as €80bn in the next few years. Axel Weber also told German politicians that the situation was worsening, according to the Wall Street Journal.
Papaconstantinou is expected to fly to Washington later this week to attend the IMF spring meeting. He told a press conference that the EU/IMF talks will take around two weeks.
“We are not among those who demonise the IMF, nor are we enthusiastic [about its role in the Greek crisis]. Our first choice was to have a purely European solution,” said Papaconstantinou.