Investors Demand High Premium for Greek Debt
The euro fell against the US dollar as results of a Greek T bill auction showed that investors still demand a high premium to hold Greek debt. Greece sold its entire allocation of 6 and 12 month t bills but high yields made borrowing costs high for the debt ridden nation. The yields Greece has to pay is significantly higher than those paid at January auctions. Audrey Childe-Freeman of Brown Brothers Harriman stated, “The higher yield confirmed the high risk premium demanded for Greek assets and that has put the euro bears in a stronger position. The euro was already showing signs of fatigue.” On Monday the euro rose near a one month high after a teleconference of EU finance ministers agreed on a rescue package for Greece. The euro pulled back after investors sought clarification about the rescue package. After nearing a one month high of $1.3691 the euro fell back to $1.3587. Ben May of Capital Economics said, “(The auction) does not really change the underlying position that Greece has very tough times ahead, it’s going through a deep recession and that’s going to lead the debt to GDP ratio to surge higher.”
Greece in Stronger Position
European policymakers remain positive about the rescue package for Greece. Ewald Nowotny who heads the Austrian Central Bank and is also a member of the ECB Governing Council said that Greece will have to decide whether to activate the loan mechanism established over the weekend and also said that policies will not be dictated by speculators. European leaders agreed on a 30 billion euro ($40 billion USD) rescue plan on Sunday. Nowotny told reporters, “Greece will go to the markets with debt issues in the near future. One will see how that develops. But Greece is now in a stronger position because we have built up a back-stop position.” Nowotny said that Greece must implement austerity measures energetically and that Greece should use the breathing room provided by the agreement to make structural changes. Nowotny stated, “The aid program is not a gift, it is a loan. It is helping Greece to help itself. The program of the euro zone states and the IMF is also a potent sign that the community of nations does not allow itself to be driven by excessive speculation.”
Other EU Problems Not Addressed say Economists
Markets were positive about the agreement reached by EU finance ministers over the weekend which reduced investor fears of a default by Greece. Some economists remain critical saying that the agreement did not address other problems in the euro zone such as slow growth and other economic problems in the EU.
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