ECONOMY

Trichet lends support amid turmoil

Comments by European Central Bank President Jean-Claude Trichet, who said he does not expect Greece to default on its loans, provided a slight respite for Greek assets yesterday against a growing chorus of voices calling for the government to seek EU-IMF aid. Greek bonds took another pounding with spreads rising for a third consecutive day to the highest level since 1999. The 10-year Greek/German government yield spread spiked almost half a percentage point to as much as 463 basis points before dropping to 427 bps. Stocks on the Athens bourse, which fell nearly 3 percent on Tuesday, plunged more than 5 percent in mid-session trade before ending just over 3 percent in the red after Trichet said he is confident that Greece can solve its own budget problems. «A default is not an issue for Greece,» Trichet told reporters in Frankfurt. «What is very, very important is that the program with the new measures that has been decided by Greece is implemented.» Greek bond yields have soared on concerns over the country’s ability to cut its deficit costs and tap capital markets to roll over 11 billion euros of expiring debt by the end of May. Skepticism about an EU-IMF financial safety net agreed on March 25 appears to have added to the country’s budgetary woes. Investors believe that plunging confidence in Greece, as reflected in rising bond spreads, will force the country to seek help. Eric Chaney, economist at French insurance company AXA Group, told Bloomberg that the markets are telling Greece they don’t want to lend to the country, while Laurent Bilke from Nomura International was quoted as saying that Greece «will have to activate Plan B and request a European rescue» to meet its refinancing needs. Chris Pryce, senior Greece analyst for rating agency Fitch, told Reuters that Athens’s only choice now was to ask for help. Despite the increase in funding costs for the Greek government, Finance Minister Giorgos Papaconstantinou said in Parliament yesterday that Greece will continue to borrow «normally» and that the execution of the fiscal consolidation program is on schedule. [email protected] Steep cut in budget deficit Greece’s budget deficit was cut by 40 percent in the first quarter of the year, prior to the full implementation of the government’s recent austerity measures, the Finance Ministry said yesterday. The budget deficit was cut to 4.3 billion euros from 7.1 billion in the same period a year earlier, according to the ministry. «This 40 percent decline has been achieved even before the latest additional government measures for cutting expenditures and increasing tax revenues have fully taken effect,» it said in a statement. The Socialist government approved in March austerity measures worth 4.8 billion euros that include cuts to public sector wages and an increase in value-added tax. The figure for the first three months of the year «proves that the government is fully on track to meet the deficit target of 8.7 percent of gross domestic product in 2010,» the ministry added. The budget shortfall last year stood at 12.7 percent of gross domestic product but is likely to be revised higher to above 13 percent of output.