Greece May Need More Austerity Measures
Greek borrowing costs are in the news in advance of the April 20th meeting between the Athens government and the EU, ECB and IMF. Greek borrowing costs have reached new highs. On Wednesday 10 days of talks will begin in Athens and will address austerity measures Greece will have to take well into 2010 to prevent default. Also on the table will be a discussion of the 30 billion euro loan package that EU finance ministers agreed to earlier in the month. The talks had originally been scheduled for Monday but fell victim to the ash cloud which has disrupted air travel across Europe. New data showing that Greece’s unemployment rate had risen caused market concerns in addition to the ongoing fiscal crisis in Greece. EU officials said that the talks would take place by videoconference if necessary. Greek Finance Minister George Papaconstantinou said the aid mechanism would only be used if needed. Papaconstantinou said there was “no chance” that Greece would fail to cover May’s borrowing costs . Colin Ellis of Daiwa Capital Markets stated, “We now expect Greece to have to tap some form of external aid to get through May… (but) until you actually get that announcement you could see spreads continue to drift.”
ECB Official Says Greece Could Need 80 Billion Euros to Avoid Default
European Central Bank Governing Council member Axel Weber said that Greece may need as much as 80 billion euros in aid during the next few years to prevent default. Weber also said the situation in Greece is worsening and that “the numbers are changing all the time.” Piet Lammens of KBC in Brussels stated, “The markets are considering more and more the prospect that not only will there be a (Greek) support package, but on top of that, debt holders will have to get some restructuring of their bonds.” On Tuesday Greece paid investors 3.65% in an attempt to attract investors to 1.95 billion euros of 13-week T-bills Jens-Oliver Niklasch of LBBW said, “It looks like the T-bill sale was quite successful in terms of them having raised more than they initially planned. But the borrowing cost was quite high. Greece won’t be able to cover its financing needs with T-bills.”
High Borrowing Costs Could Make Recovery Impossible for Greece
IMF Chief Economist Olivier Blanchard said that lending finds to Greece at high interest rates will make economic recovery for the already debt ridden nation impossible. In an interview with Le Monde Blanchard stated, “Of course, 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.” Recently implemented austerity measures include tax hikes, wage and pension freezes and remain unpopular.
