Political risk attached to EU aid sends Greek funding costs higher

Greek efforts to break free of the country’s crippling debt crisis took a turn for the worse yesterday on concerns over whether EU governments will struggle to implement the 30-billion-euro rescue plan and lingering doubts over Greece’s long-term solvency. The rate demanded on the market to buy 10-year government debt rose to 7.019 percent, from 6.815 percent on Tuesday, despite the eurozone standby rescue plan outlined on Sunday. The yield, which had hit a record high of slightly more than 7.5 percent last week, had fallen sharply in initial reaction to the agreement but moved higher again, with investors saying that the bailout doesn’t change Greece’s actual fiscal situation and that it entails political risk for some member states. «The market does not look inclined to give up its safe-haven bid at this stage,» Guy Mandy, an interest rate strategist at Nomura International in London, wrote in a report yesterday. «Although the euro-area countries have announced a Greek bailout package, it is essentially still an agreement in principle, with certain euro-area members requiring approval through local parliaments.» Germany’s parliament will probably be given a vote on any financial aid for Greece, its Finance Ministry said, risking a showdown with lawmakers. The French government, which would be the second-largest contributor to such a loan, would probably be able to obtain parliamentary approval to raise the funds within one week, Finance Minister Christine Lagarde said yesterday. EU Economic and Monetary Affairs Commissioner Olli Rehn left open the possibility that the International Monetary Fund would put up money first should the EU not be ready to meet a Greek request. «I would not want to speculate on the sequencing of possible financial assistance if requested and if needed,» he told reporters in Brussels.

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