€1.2bn in short-term Greek bonds for market

THE GREEK government faces a key debt market test today with an expected offer of some €1.2 billion in short-term bonds, a sale that comes 48 hours after the euro zone agreed a €30 billion standby credit line for the country.

As European Commission officials discussed terms yesterday with the International Monetary Fund (IMF) for a further €15 billion loan facility, the euro recorded its biggest gains against the dollar for seven months.

The single currency rose as much as 1.4 per cent, matching a rally in September, before trading at $1.3595 at about noon in New York compared with $1.35 at the end of last week.

Although the German government said a special summit of euro zone leaders would be needed to activate the aid mechanism, a spokesman for economics commissioner Olli Rehn told reporters in Brussels that a summit would not be required.

The bond sale which Athens plans today is the first in a series in the coming weeks as the Greek government seeks to raise €11 billion by the end of May as part of a €53 billion funding programme.

Any failure to attract buyers for the debt at rates lower than the record yields reached last week would be seen as a big setback for the administration of prime minister George Papandreou.

Although Mr Papandreou has not asked for the activation of the rescue plan, he has campaigned for European support on the basis that an agreement to provide aid at rates nearer Greece’s euro peers would ease pressure on his borrowing costs.

“We have a mechanism which exists whether it is used or not,” Mr Papandreou said yesterday.

“Greece has been through psychological terrorism from the markets. We need the calm that the mechanism has given us.”

Mr Rehn’s spokesman said any request for the activation of plan would be assessed jointly by the commission and the European Central Bank, which would make a recommendation for a unanimous decision by euro zone leaders.

After Greece’s financing costs rose to an 11-year high last week, the euro zone deal provided a measure of respite yesterday as the yield on short-term Greek debt fell by more than a percentage point to some 5.9 per cent.

This remains ahead of the below-market rate of about 5 per cent agreed by finance ministers after a telephone conference on Sunday.

While the IMF is likely to charge less for any loans it advances to Greece, sources said any credit the IMF extended would be granted simultaneously to the euro group plan.

Officials are working on the basis that the euro zone would provide two-thirds of the loans while the IMF provided one-third. However an informed source said there was no final agreement on that.

An IMF spokeswoman in Washington declined to comment on the talks.

“We are not speculating at this point,” she said.

The organisation had nothing to add to a statement from its managing director Dominique Strauss-Kahn, who said the IMF stood ready to join an aid plan “to the extent needed and requested by the Greek authorities”.