Borrowing Costs “Barbaric”

On Thursday markets hammered Greek bonds and banking stocks pushing borrowing costs for the Athens government higher and some speculate that the troubled nation will apply for aid from last month’s EU IMF rescue package. Borrowing costs for Greece have skyrocketed as the premium investors demand for holding Greek debt rose for the third day in a row. Investors remain wary of last month’s loan mechanism created by the EU and the IMF due to a dearth of details about the agreement. Many now believe that the Athens government is left with no alternatives and will have to ask for EU aid. Chris Pryce, senior Greece analyst for rating agency Fitch stated, “Despite everything the EU and the euro zone have done there is still a lack of clarity (and) confusion about what they intend to do, when they intend do it and how much would be involved. It is now up to the Greek government to go publicly to the EU and IMF and ask for the cash and the support.” The Greek government has promised to cut its public finance deficit to 8.7% of Gross Domestic Product this year. Some of Greece’s austerity measures have sparked protests, strikes and near riots.

Spread Levels ‘Insane’ Says Greek Official

Greece has repeatedly said it prefers to borrow from markets and will approach the IMF only as a last resort. Greek spokesman George Petalotis stated, “For the time being it is not necessary to activate the aid mechanism. The EU/IMF safety net is there to guarantee that Greece is not alone.” He also called rates demanded by investors as “barbaric.” The 10 year spread between German and Greek bonds widened to almost 463 basis points on Thursday. Two year Greek bond yields rose more than 100 bps to almost 8%. Panagiotis Dimitropoulos of Millennium Bank in Greece stated, “Spread levels today are insane, they are not levels for a euro zone country. It seems Greece is being pushed toward the aid mechanism.” Standard & Poor’s said that Greece is at risk of a downgrade if high borrowing costs continue.

Trichet Says EU IMF Agreement is ‘Workable’

European Central Bank President Jean Claude Trichet said that Greece is in no danger of defaulting. Trichet insisted that the support mechanism devised at last month’s EU summit is “workable” and  “a very, very serious commitment” by EU members. Trichet told reporters, “I would say that taking all the information I have, that default is not an issue for Greece.”