Greece Needs $60 Billion in 2010
Greece has finally asked that the loan mechanism agreed on by EU finance ministers earlier in April be activated. Greece may need as much as 45 billion euros ($60 billion USD) this year. The request came as borrowing costs for the debt stricken nation reached unsustainable levels. The yield on Greece’s two year note hit 11% and spreads are at unprecedented levels. The euro rallied gaining a modest 0.1% vs. the US dollar trading at $1.3306 but many analysts believe the aid package will do little to solve Greece’s long term problems. Daragh Maher of Credit Agricole CIB stated, “It’s a positive development in the short term. In the longer term, it’s just a sticking plaster over the situation. The euro has not seen a sizeable bounce. It shows investors remain uncomfortable with being bullish on the euro.” In a live broadcast Greek Prime Minister George Papandreou said, “It is a national and imperative need to officially ask our partners in the EU for the activation of the support mechanism we jointly created. The time that was not granted to us by the markets will be given to us by the support of the euro zone.” At this week’s G7 meeting Japanese Finance Minister Naoto Kan said that Europe asked the US and Japan for a show of support for Greece but did not request financial aid.
Trading Driven by Greek Concerns
Despite a rise in the German Ifo institute’s business morale index and a larger than expected increase in euro zone industrial new orders euro trading remains largely driven by Greek debt concerns. Ian Stannard of BNP Paribas stated, “It’s not economic fundamentals but the euro zone peripheries, especially Greece, that’s going to weigh on the market.” European Commission spokesman Amadeu Altafaj said that emergency loans to Greece will be processed as quickly as possible. Altafaj stated, “Everything is going to be done in such a way that the mechanism can be triggered as soon as (necessary) and as is necessary for Greece.” He said that interest rates on the loans would be calculated according to a formula worked out between EU finance ministers earlier this month. He also said that since the disbursement date was not known it was not possible to say exactly what the rates will be.
Austerity Measures Could Hamper Growth
European markets rallied briefly after the announcement as investors and analysts believe the loans are a short term solution to ongoing debt problems in the euro zone. Investors are also concerned that the imposition of further austerity measures could hamper growth and deepen Greece’s recession. Investors also worry that Greece’s problems could spread to other EU nations, most notably Spain and Portugal.
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