Greece closer to drawing down aid as borrowing cost rises

THE LIKELIHOOD of Greece drawing emergency loans from the EU and the IMF has moved closer as its borrowing costs rose to record levels and Athens prepared for key talks today with European and IMF officials.

The government of prime minister George Papandreou managed to ease some of the immediate pressure it faces by selling €1.95 billion in three-month debt yesterday at a high yield.

Although the country’s requirement as it seeks to refinance long-term debt next month is now below €10 billion, the yield on its 10-year paper rose yesterday to the highest levels since the euro was introduced in 1999.

In the face of public anger over swingeing austerity plans he has already introduced, Mr Papandreou will come under pressure from his would-be lenders in the coming days to pin down the additional measures he will take in the next two years.

Greece’s EU partners and the IMF have promised to lend as much as €45 billion in the first year of a three-year rescue programme that would be triggered as a last resort.

The country’s debt crisis is intensifying pressure on German chancellor Angela Merkel, who faces deep-seated reluctance to intervene within her coalition and among the German public.

The chancellor faces crucial mid-term elections in three weeks in North Rhine Westphalia, the most populous German state, and risks losing her power to enact laws in the upper house of parliament.

But with Greek borrowing costs continuing to climb even after the specific pledge of aid from the EU and the IMF, certain official observers in Brussels believe the prime question now centres on “when” Greece seeks aid more than “if”.

The 10-year yield reached 7.82 per cent, more than twice the rate for comparable German debt, as German central bank chief Axel Weber was reported in the Wall Street Journalto have said the country may ultimately require €80 billion over three years.

However, finance minister George Papaconstantinou said the talks beginning today may not necessarily end with a deal. “There may be a framework to which we may return at a later date.”

While the Minister said the talks could last 10 days, a spokesman for EU economics commissioner Olli Rehn said they could continue for three weeks.