Greece's issue of a ten-year bond first sign of fiscal hope

08/03/2010

Greece's recent bond issue sells out within an hour of its offer, adding a ray of hope to the nation's dark economic picture. The EU's monetary commissioner urges the nation to "keep its chin up".

By HK Tzanis for Southeast European Times in Athens -- 08/03/10

Greek Prime Minister George Papandreou met with German Chancellor Angela Merkel and French President Nikolas Sarkozy to discuss plans to salvage the economy. [Getty Images]

If a recent government bond issue is any measure of optimism regarding the Greek economy, austerity measures taken by the government this month seem to be paying off.

The eagerly watched, ten-year bond issue on March 4th raised 5 billion euros, as foreign investors and EU institutions seemed to be reassured of Greece's determination to overcome its image as the weak link in the Eurozone.

The ten-year bond hit an interest rate of 6.37%, more than twice the rate of the equivalent German bonds, which are the benchmark in the Eurozone and was oversubscribed to 15 billion euros.

On Friday (March 5th) Greek Prime Minister George Papandreou met with Angela Merkel -- chancellor of Germany, an EU economic powerhouse -- and, as promised, did not ask for financial help. Berlin has been the most vocal in expressing "Eurozone angst" over negative economic trends in peripheral members of the EU currency.

After their meeting, Merkel said "Germany can express its solidarity. We are here to help [and] show understanding."

Papandreou then met with French President Nicolas Sarkozy in Paris on Sunday, and meets on Monday in Washington with US President Barack Obama.

The bond issue followed a whirlwind two weeks of carefully choreographed visits to Athens by a joint team of European Commission, IMF and European Central Bank (ECB) experts. There was also an unannounced meeting between Deutsche Bank CEO Josef Ackermann and Papandreou, as well as one between Papandreou and EU Monetary Affairs Commissioner Olli Rehn.

Rehn made it clear that a second round of austerity measures was necessary, leaving the Greek government to decide the particulars of 4.8 billion euros worth of spending cuts and an equal amount of tax increases.

Leaving reporters after an Athens press conference, Rehn wryly said "kalo kouragio", a Greek expression for "keep your chin up".

"The measures are correct and in the right direction, but not enough; they do not deal with the problems at their root," financial reporter and analyst Babis Papadimitriou told SETimes. "When you slash someone's salary, you've obviously failed."

A day earlier -- March 3rd -- the government unveiled hikes in the Value Added Tax (VAT) rate, along with higher taxes on energy, cigarettes, alcohol and high-end luxury items.

It also reduced cherished holiday pay for public workers -- known as the "13th and 14th salaries" amounting to two extra months of pay -- given before Easter, over the summer and ahead of Christmas.

A 12% cut in various bonuses paid to civil servants and a freeze on pension increases triggered union protests while opinion polls in the country offered mixed responses. A majority of those surveyed agreed that measures are necessary but most rejected the specific ones announced so far.

For Papadimitriou, a columnist for the respected daily Kathimerini and analyst for the local Skai broadcast network, Greece's problems have been obvious for several years. He said the deficit -- 12.7% of GDP in 2009 -- and runaway public debt (roughly 300 billion euros) was well-documented before the October 2009 elections. That race was won easily by Papandreou's socialist PASOK party.

Papadimitriou said that before PASOK took office, the centre-right government of Costas Karamanlis "simply blamed [the country's debt] on the global economic crisis".

And now, the analyst observed, PASOK is obliged to implement a belt-tightening programme that runs counter to its political aims. "Therefore, it lacks enthusiasm for such drastic measures," he said.