Greek debt pile manageable

Greece may successfully wrestle with its debt over the next few years, although there are risks that the economy will enter a deeper-than-expected recession and confidence in banks may drop, according to the International Monetary Fund. The Washington-based IMF, which will co-fund Greece with 110 billion euros over the next three years to help the country meet its borrowing needs, said in a report that the country’s «debt is expected to be sustainable in the medium term and its repayment capacity to be adequate.» Despite Greece recently announcing tax hikes and spending cuts worth 30 billion euros by 2012, the country is not expected to get on top of its growing mountain of debt until 2014. The IMF, whose officials recently spent several weeks in Athens before agreeing on the joint funding program with the European Union, sees Greece’s debt peaking at 149 percent of gross domestic product in 2014, up from 133 percent this year. A Finance Ministry source told Kathimerini English Edition yesterday that the government formally applied to the European Commission yesterday for the first tranche of the loan. The ministry expects to receive 14.5 billion euros from the Commission by early next week, while an additional 5.5 billion euros will come from the IMF today to help Greece pay off bonds that expire in May and June. Although the fiscal adjustments are «impressive» in size, they may result in a deeper recession for the economy given sluggish growth abroad, the IMF warned. The Finance Ministry expects the economy to contract by 4 percent this year before shrinking by 2.6 percent in 2011 at a time when eurozone countries are forecast to grow by 0.9 to 1.5 percent respectively over this year and next. On the domestic banking front, the US-based lender pointed out the risks of deteriorating financial market conditions that could weigh on the banking sector, although it is «comfortably capitalized.» «Low growth, deteriorating asset quality and higher funding costs could all weigh on banks,» said the report. Rising jobless numbers are making it harder for Greeks to pay back loans. Experts anticipate that growth in nonperforming loans, that is, those in default or close to being in default, will peak in the middle of 2011, eating into bank profits. Expectations of a tough year for lenders this year have already hit bank shares on the Athens bourse, which have given up almost 50 percent in the last six months versus a 34 percent retreat on the broader market. «The protection of asset quality is the biggest bet Greek banks will have to win in 2010,» said an analyst at a leading Athens brokerage. According to analysts’ estimates, the rate of bad loans is estimated to rise to around 10 percent this year from close to 7 percent in 2009. [email protected] Two-year bonds lead rise Greek two-year notes led gains among securities issued by the euro region’s most indebted nations yesterday on speculation central banks are buying bonds for a second day. Portuguese and Irish notes also rose after the 16 euro nations agreed to a 750-billion-euro loan package on Monday and the European Central Bank pledged to buy government bonds to tackle the region’s sovereign debt crisis. The central banks of Germany, France and Italy said yesterday they started asset purchases. «Short-dated peripheral bonds are supported by speculation that national central banks might be in the market,» Charles Berry, a bond trader at Landesbank Baden-Wuerttemberg in Stuttgart, told Bloomberg. «That’s the type of maturities that they tend to focus on.» The yield on the Greek note maturing in March 2012 fell 125 basis points to 7.91 percent, after tumbling on Monday by 1,063 basis points, or 10.63 percentage points. Greece’s 10-year bond yield slid 56 basis points to 7.76 percent after advancing earlier. Greek debt is the worst performer in the region this year, handing investors a 28 percent loss, according to Bloomberg/ EFFAS indices. That compares with a 4.4 percent gain from German bonds.

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