GREECE’S PROSPECTS of avoiding the drawdown of an exceptional aid package from the EU and International Monetary Fund (IMF) diminished significantly yesterday as the European authorities said its deficit last year was higher than expected and its bonds took a hammering on the markets.
As Greek prime minister George Papandreou chaired a seven-hour cabinet meeting in Athens, the euro fell to the lowest level in almost a year against the dollar.
Amid ongoing talks with European and IMF officials over the parameters of the aid plan for Mr Papandreou’s administration, the yield on benchmark Greek 10-year bonds breached the 9 per cent threshold only days after it crashed through the 8 per cent barrier.
The yield, almost triple the rate on comparable German bonds, may intensify the Greek government’s difficulties as it prepares to try to raise a little under €10 billion in long-term money before the end of next month.
Although Athens has successfully raised short-term money in recent days, two-year government bond yield surged by four percentage points to 12.26 per cent yesterday.
With Mr Papandreou widely held to be teetering on the brink of seeking to trigger the last resort aid mechanism, Austrian finance minister Josef Proell turned up the pressure on him by saying the Athens government was apparently unwilling to accept conditions that would be attached to the aid.
Saying Athens was hesitating as a result, Mr Proell said “the time for action is now”.
The marathon cabinet meeting meeting broke up without any statement on whether Greece would trigger an EU/IMF aid package.
“It’s our historic obligation to take decisions that will avert the worst for Greece,” he told the meeting.
“We have reached this point after decades of mistakes, omissions and sitting back idly.”
The EU’s statistical arm, Eurostat, said the Greek deficit reached 13.6 per cent of gross domestic product (GDP) last year, not the 12.7 per cent which it had reported earlier. The finance ministry in Athens insisted the new numbers would not change its intention to cut the deficit by four percentage points this year, saying measures already taken would be enough to cut the deficit by six points.
However, EU officials appeared to be backing away from a previously announced target for Greece to slash the deficit to 8.7 per cent of GDP this year.
“The target for 2010 is a four-percentage point reduction of the deficit. We did not refer to the starting point or the arrival figure, only the reduction effort,” said a spokesman for EU economics commissioner Olli Rehn.
Rating agency Moody’s cut Greece’s sovereign rating by one notch to A3, placing it four notches above “junk” status, and kept the new rating on review for a possible further downgrade.
“There is a significant risk that debt may only stabilise at a higher and more costly level than previously estimated,” it said.
