Fast return to market planned

Greece, which yesterday received the first installment of a European Union aid package, cut its budget deficit in the first four months by 42 percent and expects to borrow on the financial markets as soon as circumstances allow, Finance Minister Giorgos Papaconstantinou said. «The program has been designed to make it possible to stay away from financial markets through the end of 2011 and the first quarter of 2012. We don’t expect this to be the case; we want to come back to markets much sooner,» Papaconstantinou told reporters in Brussels after a meeting with European Union counterparts. «When exactly will depend on the situation in international markets.» Euro-area ministers and the International Monetary Fund agreed in early May to a 110-billion-euro aid package for Greece. In return, Athens pledged to implement austerity measures corresponding to almost 14 percent of gross domestic product in exchange for the rescue funds that EU officials hoped would stem declines in the euro. «The program is on track, the budget in the first four months of the year shows a reduction of the deficit exceeding 40 percent, 41.8 percent to be precise,» added the minister. «The rest of the measures in the following months are being implemented and will be on time.» With 5.5 billion euros already delivered by the IMF, Greece has now received the first 20-billion-euro tranche of the loans, the Greek Finance Ministry said in a statement. Athens now can and will repay an 8.5-billion 10-year euro bond which matures today, a government official said. The Greek government will be paying interest of around 5 percent, far below current market yields of well over 7 percent for Greece’s 3-year bonds. Investors are closely watching whether Greeks will swallow the bitter austerity pill, or whether the wave of public anger continues to rise, and if it does, how well Prime Minister George Papandreou can withstand the pressure to transform the consumer-driven economy. Greek 10-year government bonds rose yesterday, snapping a three-day decline. Greece’s 10-year bond yield dropped 32 basis points to 7.95 percent. The yield premium over German Bunds, the region’s benchmark securities, narrowed 27 basis points to 492 basis points. The two-year yield slid 85 basis points to 7.09 percent. European finance ministers said yesterday Greece’s debt crisis won’t lead to a continent-wide austerity drive that may tip the economy back into a recession. Economists said the market feels a sense of relief that Greece will be able to meet its liquidity needs, adding that while «the default risk hasn’t been eliminated, it has been deferred.» Greece aims to cut its deficit from nearly 14 percent of GDP to 3 percent by 2014, though the magnitude of this challenge makes it a task never achieved by any other government. EU-IMF bailout plan provides sustainability Ratings agency Fitch said yesterday the implementation of a 110-billion-euro aid plan for Greece funded by the European Union and International Monetary Fund provides a path to medium-term debt sustainability. The aid package «minimizes near-term liquidity risk for Greece, obviates the need for the sovereign to tap international capital markets until 2012 and offers the government a path to solvency,» provided that a proposed fiscal consolidation plan is implemented fully and effectively,» said Paul Rawkins, a senior director on Fitch’s sovereign ratings team. The agency noted, however, that debt is still set to rise to almost 150 percent of gross domestic product before stabilizing in 2013, «making this route a highly challenging one.» Fitch currently rates Greece at BBB- with a negative outlook. Late on Monday, the agency noted that money market funds have got rid of all their investments in Greece and cut exposure to Spain and Portugal on concerns about high sovereign debt levels in the eurozone countries. Money market funds are a major group of investors which banks and other companies rely on to raise cash.

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