State reaffirms issues of popular bonds for public

The Finance Ministry yesterday reiterated its determination to go ahead with issues of short-term popular bonds targeted at the public to help offset negative yields from savings interest rates despite strong opposition from the banking industry. The bonds will probably be three-month, six-month and 12-month offerings and could even include five-year and 10-year paper, Deputy Finance Minister Giorgos Floridis told state radio station NET. The semiofficial Athens News Agency said the bonds are expected to offer a yield 50 to 100 basis points above inflation. Criticizing the banking sector for its indifference to the plight of small savers, Floridis said the short-term government bonds will be marketed as an alternative investment product for people who have seen the value of their bank savings shrink dramatically after the last round of interest rate reductions last month. After discounting inflation, bank savings currently offer a negative real return. With the European Central Bank expected to trim interest rates yet again in the first quarter of the year, savers should be prepared for a further drop in the value of their bank savings. The ministry will reveal further details of its plans later this month. The government’s intentions, however, first unveiled last month, have drawn fire from the banking industry, which sees the proposed savings bonds as a competitor to its own investment products. The Public Debt Management Agency has said the savings bonds would only constitute a small proportion of the government’s debt refinancing needs this year, estimated at around 30 billion euros. It is planning two syndicated issues with a combined value of 10 billion euros in the next two months, split evenly between a five-year offering and a 10-year issue. The current furor over the negative yield from savings interest rates overlooks the benefits of low interest rates for both the private sector and the government, Alpha Bank pointed out in an economic report released on Tuesday. Low rates are expected to substantially lighten Greece’s debt refinancing burden this year and in the coming years, it said. Revised upward to 105.2 percent of GDP, Greek public debt in 2002 was the second highest in the EU. Low borrowing interest rates are set to reinforce private sector investment and spending, both crucial to realizing the government’s ambitious growth targets in the next three years. Despite negative real returns, many savers are keeping their money in savings accounts because of the convenience and easy withdrawal, Alpha Bank said. Bank of Greece statistics showed close to half of Greece’s money supply or 58.9 billion euros in October was parked in savings accounts or three-month fixed deposits. «It’s evident that savers at the present moment prefer the bulk of their savings in ready cash, allowing them to settle credit card payments and other payments,» Alpha Bank said.

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