Investors Remain Nervous Over Greece’s Debt Crisis
The US dollar was mixed against most major currencies in advance of Friday’s upcoming jobs report and continuing euro jitters. Investors see Greece’s high borrowing costs as evidence that the beleaguered nation’s debt troubles are far from over. Greece was able to raise money from bind sales but financial markets demanded higher interest rates for Greece’s debts despite last week’s agreement between the EU and the International Monetary Fund. The EU has agreed to provide two thirds of funding should Greece need it and the IMF has agreed to provide the other third. The Athens government has repeatedly said that it does not need outside financing and has implemented austerity including tax hikes and a cut in pensions. Investors are waiting to see if the EU IMF agreement can restore euro confidence and erase concerns about Greece’s massive debt crisis. The euro has fallen more than 6.5% so far this year and investors are starting to question the sustainability of the multi nation currency that combines economically disciplined countries in northern Europe with free spending southern European nations. In addition to Greece’s woes Portugal’s rating was downgraded by three major ratings agencies. Michael O’Sullivan of Credit Suisse stated, “The issue of country indebtedness is going to be with us all year and next year on a kind of revolving basis.”
Bond Issue Fails to Meet Expectations
Greece’s recent bond sale gave the troubled nation little respite due to less demand than previous bond issues. The 7 year, 5 billion euro ($6.72 billion USD) Greek bond issue was the first test of market confidence after last week’s announcement of an EU IMF rescue plan. The Greek bonds carried a coupon of 5.9% twice what Germany pays on 7 year bonds. Fitch ratings agency said in a statement, “The (euro zone) statement was positive for Greece’ credit profile by enhancing its near-term financing options and flexibility as well as reaffirming the support of euro area member states for economic and fiscal reform in Greece.” Fitch continues its negative outlook for Greece and referring to last week’s agreement and cited a “lack of clarity over the fiscal financing strategy”.
No Indications Greece Will Ask For Aid
The head of the International Monetary Fund has not had much to say since the agency was assigned a subordinate role in the Greek rescue plan. Managing Director Dominique Strauss-Kahn said that there are no immediate indications that Greece would need the agency’s help. Strauss-Kahn also said, “We will move and we will say something only when Greece asks us.”
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