ECONOMY

Doubts grow over EU deal as debt costs stay high

Greece fought for months to get European Union help to tackle its mounting debt crisis but it has taken only days for fresh doubts to emerge about the deal and the country’s ability to put its finances in order. Greece finds it still has to pay a high and rising price to secure crucial funding on international markets to roll over debt – let alone pay it down so as to relieve the strains on the economy and the broader eurozone. The March 18-19 accord with the EU was supposed to convince markets that Greece would not be allowed to fail and accordingly would be a better credit risk, deserving lower rates of interest on its debt. As the interest rates or yields fell, Athens would have more money available to pay off its overall debt and reduce a budget deficit which last year was more than four times the EU-set limit. Hugely unpopular spending cuts would also help improve the public finances. If that was the plan, however, it has not worked so far. «The biggest hurdle for the Greek government is to get its borrowing done at a decent yield [interest rate],» Global Forex Trading (GFT) analyst David Morrison told AFP. «They [want]… yields similar to Germany’s, around 3 percent, rather than the 6 percent-plus the market is demanding,» Morrison added. The 10-year Greek government bond on Thursday was yielding 6.529 percent, up sharply from 6.333 percent on Friday the previous week after Brussels announced the accord, which also provides for International Monetary Fund involvement. The difference, or spread, between Greek and German 10-year bond yields has steadily widened, hitting 342 basis points on Thursday, up from 321 points earlier in the week. Talk of an IMF rescue – which would be the first to involve a eurozone member – could have actually impaired the country’s efforts to drive down its borrowing costs, the Greek debt agency chief suggested. »Had there not been any talk of the IMF and support packages we would have been left alone in peace and been able to issue [bonds] and have a proper and well functioning market,» debt management agency chairman Petros Christodoulou told CNBC. The government has warned that its plans to pull the country out of a deepening recession in which the economy is expected to shrink by at least 2 percent this year could be compromised by higher debt repayments. «If the money we save from tax revenue and spending cuts is to be spent on interest, it’s clear that the country can neither carry out a fiscal adjustment nor have any benefit,» Deputy Finance Minister Filippos Sachinidis said. Greece may pay about 13 billion euros more in interest on its debt this year and analysts say the country can ill afford to continue borrowing at rates over 6 percent. Others suggest the climate will improve once markets perceive that the government means business on ending decades of waste and mismanagement in the civil service, state hospitals and public-owned companies. «It’s clear that Greece cannot sustain borrowing at 6 percent for long,» said Athens University of Economics and Business professor George Pagoulatos. «But we are in a period of de-escalation, we just have to give it time,» he told AFP. (AFP)