07 March 2010

Greece's EUR 5 billion issue

Finally, Thursday Greece sold EUR5 billion of ten years bonds yielding 6.37%, below the top seen on its debt in the past few weeks at nearly 7%, but still twice the level of German bunds. It was reportedly oversubscribed 3 times, investors being attracted by the yield and the implicit backing of Germany and France. This was again outlined today by Nicolas Sarkozy, the French President, who declared that the euro region must meet Greek obligations if needed.

Mr. Christodoulou, the head of Greece’s debt management agency, said that 97 percent of the bonds sold on Thursday were allocated to what he called “real money investors” — institutions with a long-term outlook, like pension funds and insurance companies — and not to more speculative investors like hedge funds. It remains to be seen whether these “long term” investors will renew their confidence during coming money raising exercises and will not become sellers if Greece does not abide by its commitments.

This bond issue was launched after a heavy marketing campaign undertaken during the past 10 days culminating with Wednesday’s announcement of additional cut spending and taxes raises in order to ease concerns over its runaway budget deficit and getting the UE backing.

Amidst this austerity package, strikes and protest, sometimes violent, continue unabated. Next round: 16 March 24 hours strike.

In any case this success will reduce the pressure on Greece short term and other PIGS countries as well as the Euro, but it has to be seen whether the economic, fiscal and social convergence will go as far as necessary for the one-fits-all work.