Greek bond issue will test faith in EU rescue deal

GREECE IS poised to launch a multibillion-euro bond issue next week in a vital test of confidence in the rescue package agreed by euro zone leaders.

“We would like to return to the market within March,” Petros Christodoulou, head of the public debt management agency, told the Financial Times yesterday. Athens wanted to borrow about €5 billion from the bond markets, he said.

Mr Christodoulou’s comments followed the deal struck in Brussels between euro zone leaders on a rescue plan that included the International Monetary Fund and co-ordinated bilateral loans from euro zone countries at market interest rates.

Greek stocks and bonds rallied on the accord, reached after France and Germany agreed on the principles of a rescue, while the euro jumped against the dollar and its 15 other major counterparts after European Central Bank president Jean-Claude Trichet blunted criticism of IMF involvement in a Greek rescue.

“Relief after yesterday’s plan is driving the euro,” said Brian Kim, a currency strategist at UBS in Stamford, Connecticut. “It’s good that they have a backstop in place and that Germany will participate. It gives Greece a backstop and lessens the chance of default.”

Europe’s currency advanced for the first time in four days versus the dollar after euro-area leaders at a meeting in Brussels put the IMF on standby to help debt-stricken Greece. Mr Trichet told reporters in Brussels late yesterday he was “extraordinarily happy that the governments of the euro area found out a workable solution”.

“A change in Trichet’s stance toward an aid plan for Greece triggered a knee-jerk buy-back of the euro,” said Yuichiro Harada, senior vice-president of the foreign-exchange division in Tokyo at Mizuho Corporate Bank, a unit of Japan’s second largest lender.

George Papandreou, the Greek prime minister, welcomed the agreement as “a very good outcome for our country”.

“The European Union leaders have succeeded in safeguarding our union and our common currency,” he said at the end of the EU summit in Brussels.

He insisted, however, that he did not intend to ask for any money from Greece’s euro zone partners. “We hope we never need to ask, because we are doing our work,” he said. “We have had a positive reaction both from our people and from the markets.”

Despite Mr Trichet’s comments, the deal on Greece amounted to a defeat for the ECB, which had opposed greater IMF involvement.

Greece is expected to issue either a three-year or seven-year bond, to be followed in April by a similar-sized issue.

Athens needs to raise €10 billion to refinance maturing debt over the next month. Analysts warned, though, that Greek bond yields, which move inversely to prices, would take time to fall.

“Getting Greek spreads down to the level of Portugal’s may take eight to 12 months, and it will depend on our fiscal performance,” said one Greek banker. – (Copyright The Financial Times Limited 2010; Bloomberg)