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| The price of insouciance |
| Pierre Briancon / Feb 23, 2010, 00:52 IST |
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Greek bond sale: Markets are unfair, investment banks played a shady role, euro zone members are indecisive. George Papandreou, the Greek prime minister, hasn't lacked targets to criticise, with a long list of parties which have, in his view, added to his country's financial woes.
Greece is mulling a 10-year, 5 billion euro ($6.75 billion) bond issue in the next few days, according to several newspapers. Papandreou says he thinks the country should borrow at the same terms as fellow euro zone members. This, of course, is wishful thinking - he doesn't get to decide. The Greek leader should instead work at providing reasons to trust him to put the Hellenic house in order.
Simply talking, evidently, will not do. The spread between yields on Greek and German 10-year government bonds has hovered around 320 basis points for most of last week. This is down from a high of near-400 basis points at the end of January. But it is still well up from about the year's low of 270 basis points, reached two weeks ago, after euro zone leaders said they would stand by Athens if needed.
The current Greek risk premium would cost the country 185 million euros on a 5 billion euro bond. There may be some irony in investors simultaneously demanding a lower deficit and adding to it, but Papandreou has the job of convincing them otherwise.
The prime minister would like help from other euro zone countries in the form of financial guarantees, which would lower his borrowing costs. But his European peers want the same thing as the markets - to be persuaded that Greece is on the right path. Germany and the others do not want to take on too much Greek risk.
Athens was given a mid-March deadline to convince other EU governments of its plan's seriousness. Until then, if it needs to borrow, it will have to do it at current, expensive market conditions. Crying won't help.
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