14 abril 2010

Some Respite for Greece in Successful Debt Sale

Greece sold 1.56 billion euros ($2.12 billion) in high-yield debt that effectively carries a European Union guarantee.

Investors bid 3.9 billion euros on Tuesday for the 600 million euros of 52-week Treasury bills, the Greek Public Debt Management Agency said, meaning the offer was oversubscribed 6.54 times.

An auction of 26-week bills, also seeking 600 million euros, drew bids totaling 4.6 billion euros, for an oversubscription ratio of 7.67. The demand allowed Greece to sell 780 million euros of bills in each auction.

But economists warned that Greece still faced immense long-term problems. In the worst case, Greece could still default, analysts said. More likely, in coming years it will require serial bailouts by its euro zone partners.

“Even under relatively conservative assumptions the Greek debt situation is unsustainable,” said Erik F. Nielsen, the chief European economist at Goldman Sachs in London and a former International Monetary Fund official. “Something has to give.”

Left to fend for itself, Greece would probably run out of money and default, analysts say. But other European countries are likely to conclude, however reluctantly, that continuing to support Greece is less costly than letting the country go under.

A Greek default would cause borrowing costs to spike in other overly indebted countries like Spain, creating a much graver crisis that would threaten the credibility of the euro.

“Greece is too small to fail,” said Stuart Green, economist at HSBC Bank in London. “The policy of E.U. leaders is to nip the problem in the bud with Greece before it becomes more expansive.”

Still, the successful bond sale seemed to validate the decision by European governments on Sunday to provide 30 billion euros in loans if Greece was unable to raise money at a reasonable cost. The International Monetary Fund is expected to provide another 15 billion euros in aid.

The demand on Tuesday for Greek debt also seemed to indicate that Athens would not need to ask for the help right away.

“We can turn our attention with greater calm to domestic challenges and promote the necessary changes,” Prime Minister George A. Papandreou said, according to Reuters.

However, the rates on the notes — 4.85 percent for the 52-week bills and 4.55 percent for the 26-week bills — were more than double those Greece paid on Jan. 12 on similar maturities.

In addition, yields on debt with maturities of two or more years were still at least 6 percent in Tuesday trading, meaning the government will have to pay a high price as it seeks to refinance 40 billion euros more in debt this year.

“There seems a strong chance that the government will eventually be forced to seek funds from the rest of the euro zone,” Ben May, of Capital Economics in London, wrote in a note.

The need to refinance debt is only the most immediate of Greece’s problems.

The Greek government has based its plans to shrink the budget deficit, which is nearly 13 percent of its gross domestic product, on a modest economic downturn of 0.3 percent this year. The government expects growth to resume in 2011.

But economists at UBS, the Swiss bank, warn that those assumptions could be way too optimistic. UBS forecast a plunge in G.D.P. of 5 percent this year and next as cuts in public sector wages and other austerity measures feed through into the broader economy. If so, Greece could become caught in a vicious circle where declining output undercuts attempts to reduce the ratio of borrowing to G.D.P. The debt burden would increase at the same time the government’s ability to pay was declining.

European leaders will also be mindful of how deeply exposed their own banks are to Greece. All told, Greece owes 252.8 billion euros to European banks.

The country’s debt situation is certain to be a main topic yet again when European Union finance ministers meet in Madrid beginning late Thursday.

Ultimately, Greece’s fate rests on the ability of Mr. Papandreou and his government to create a more competitive economy. As a euro member, though, Greece cannot take the traditional route to competitiveness in world markets and devalue its currency to cut the price of its exports.

“The only way to be competitive is by adjusting costs, and that means wages going down,” said Diego Iscaro, an economist at IHS Global Insight in London. “That is likely to be a long and painful process.”

Fonte: The New York Times