Tags: Greece | Bankruptcy | Interest | Rates

Greece Faces Bankruptcy as Interest Rates Soar

By    |   Friday, 09 Apr 2010 10:33 AM

As interest rates on Greek debt skyrocket, the question facing Europe is no longer whether Athens has the political will to cut spending and raise taxes to curb its huge budget deficit, but whether Greece will run out of money before it gets the chance to do so.

However, debt-ridden Greece has not asked for the activation of a euro-zone and International Monetary Fund rescue plan designed to prevent a default, but details of how the plan would operate are being worked out, the finance minister said Friday.

The country has been gripped by a debt crisis for months, and in March euro zone leaders agreed on a hard-fought bailout plan that would provide Greece with bilateral loans and IMF funds to avoid default and protect the euro. Athens had hoped the existence of the rescue package would calm markets and bring down the borrowing costs.

But with the rate on 10-year Greek bonds reaching as high as 7.5 percent on Thursday, up from 6.5 just three days ago, the cost of insuring against a Greek default hit a record high.

The message from the market could not be clearer: artfully worded communiqués from Brussels will no longer suffice. To avoid bankruptcy, analysts said, Greece needs a bailout from Europe, and fast, The New York Times reports.

“This is no longer about liquidity; it’s a solvency issue,” said Stephen Jen, a former economist at the International Monetary Fund who is now a strategist at BlueGold Capital Management in London.

With European officials consumed with a debate over whether loans to Greece should be offered at rates consistent with a typical IMF bailout or punitive ones closer to current market levels, the risk is that while Brussels fiddles, Greece is burning, the Times reported.

Asked whether Greece would seek help, Finance Minister George Papaconstantinou said Friday that "no such issue has been raised," the Associated Press reported.

"We have said that Greece does not intend to make use of the mechanism but it is very important for our country for this safety net to exist," he said after meeting with Prime Minister George Papandreou to discuss the situation.

But the rescue plan is vaguely worded and has not eased market concerns.

“This should be easy to do; Greece is only 3 percent of Europe’s GDP,” said Paul De Grauwe, an economist based in Brussels who advises the president of the European Commission, José Manuel Barroso. “But this is no longer a financial issue. It is about politics and nationalism, and it is a real setback for those who believed in a united Europe,” he told the Times.

“Time is running out,” said a senior official in the Greek government who spoke on condition of anonymity because of the delicacy of the issue. “The market is testing Europe’s resolve.”

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As interest rates on Greek debt skyrocket, the question facing Europe is no longer whether Athens has the political will to cut spending and raise taxes to curb its huge budget deficit, but whether Greecewill run out of money before it gets the chance to do so. However,...
Greece,Bankruptcy,Interest,Rates
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2010-33-09
Friday, 09 Apr 2010 10:33 AM
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