ECONOMY

Greece moves toward aid plan

A letter from the Finance Ministry yesterday saying that it wants to begin preparatory talks on an international rescue aid package and the nation’s high borrowing costs indicate that Greece is a step closer to becoming the first eurozone member to reach for a bailout plan. Finance Minister Giorgos Papaconstantinou sent a letter to the European Commission, European Central Bank and International Monetary Fund seeking to start «talks on a program of economic policies that could support financial assistance if the Greek authorities seek such assistance.» Minutes after the letter was made public, a ministry source clarified that this does not mean the aid will be make use of, but this did little to convince the market. Investors see Greece’s efforts to seek clarification on the aid mechanism as an indication that it is ready to activate it, according to market experts. The news helped to pave the way for a drop in Greek debt funding costs, which have been rising the last few days despite eurozone ministers agreeing Sunday on a joint IMF rescue plan for Greece worth up to 45 billion euros. The premium investors demand to hold Greek paper over German 10-year bonds fell to 399 basis points yesterday from 427 bps earlier in the day. However, the interest rate Greece is called upon to pay for 10-year bonds stands at more than 7 percent versus a rate of 5 percent charged by the EU in its contribution to the rescue plan, which amounts to 30 billion euros. The news also helped to trigger a rebound in Greek stocks, which ended more than 2 percent higher on bank-led gains. Earlier this week, Papaconstantinou had insisted Greece did not intend to use the aid package, saying that funding costs are only part of the decision about whether the country should turn to its EU partners for help. In Washington yesterday, the IMF confirmed it will send experts to Athens next week in case the country needs to borrow from the fund, news agencies reported. Brokers said a US roadshow, scheduled to start next week, with a view to launching a dollar bond, is likely to be the Greek government’s last chance to convince investors that it can go it alone without the risk of default. A Finance Ministry source told Reuters yesterday the roadshow will go ahead as normal, denying earlier press reports that it had been canceled due to rising spreads and a lack of investor interest. [email protected] Aid deal seen as watershed in crisis The Greek aid deal is a turning point in the crisis and shows that suggestions of the dissolution of the eurozone and a Greek default are absurd, a top European Central Bank (ECB) policymaker said yesterday. Speaking in Japan, ECB executive board member Lorenzo Bini Smaghi s aid the deal for joint European Union – International Monetary Fund financial support agreed to by eurozone leaders over the weekend was a vital step. «This announcement makes it clear what the euro-area authorities have said for many months, i.e. that a scenario of default and exit from the euro area, which some market participants and observers had toyed with, was simply absurd.» He added that the problems had exposed the shortcomings of Europe’s political decision-making. Meanwhile, talk that the 45-billion-euro rescue plan for Greece won’t be enough to restore the euro’s credibility weighed on the single currency yesterday, which dropped for the first time in six days against the dollar. The euro fell 0.7 percent to $1.3554 in mid-session trade in New York, from $1.3653 on Wednesday.