Uncertainty sees spreads widen

Political instability, the revision of fiscal data and scenarios of bankruptcy have once again challenged confidence in Greece on foreign markets, sending the cost of Greek borrowing higher over the last few days. The spread between the yield of the Greek benchmark 10-year bond and the German Bund widened considerably this week, from 700 basis points last Monday to 807 bps last night. In mid-October, it stood at just 660 bps. This strong rise during the week illustrates that the markets have not yet been convinced that Greece can emerge from its financial crisis. This also makes Greece’s return to the market for borrowing all the more difficult, although the Finance Ministry believes that there is enough time until mid-2011 for the mood to change. Statements made by Prime Minister George Papandreou in a televised broadcast on Monday regarding possible early elections, should PASOK not do well in local polls, rocked the markets. They obviously believe that if Greece’s streamlining is to continue, it will require political stability during which ministers will not feel uncertain, as that would result in delays on reforms. At this time, the PM’s statements may have served party political purposes ahead of the local and regional elections but did nothing to help keep the markets calm, as they had been in recent weeks. At the same time, European Union statistic agency Eurostat and the Hellenic Statistical Authority are continuing data checks at ministries, local authorities and other state corporations, such as hospitals, social security funds etc. On Wednesday, Finance Minister Giorgos Papaconstantinou said for the first time officially that the 2009 deficit will be above 15 percent of gross domestic product, instead of the 13.8 percent of GDP on which the 2011 draft budget was based. «After the final revision by Eurostat, which will give the conclusive figure for 2009, the deficit will exceed 15 percent,» the minister told the Limassol Economic Forum in Cyprus. There also are many analysts who are convinced that Greece will default in the next three years or so. However, Jurgen Stark, a member of the executive board of the European Central Bank, voiced his certainty that Greece is on the right track to recovery, lending his support for Athens’s efforts.

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