Greeks see no quick fix from EU safety net

By George Georgiopoulos

ATHENS (BestGrowthStock) – The safety net thrown to Greece is no panacea and prospects of an IMF bailout still loom, local experts believe, but Greeks hope the promise of EU support will afford them breathing space to revive their crippled economy.

Euro zone leaders on Thursday agreed to create a backup mechanism jointly with the International Monetary Fund for debt-ridden member states such as Greece, but tough terms imposed by Germany mean it will only be activated as a last resort.

European Central Bank Governor Jean-Claude Trichet meanwhile offered Athens more tangible help by extending easier ECB rules on accepting assets in liquidity operations into 2011, significantly reducing the risk of Greek bonds being rejected as collateral.

Trichet stole the local limelight on Friday, with newspapers and economists heaping praise on what they called a vote of confidence in Greek debt that could prove more significant than reassuring but intangible EU and IMF aid.

“A double sigh of relief after an all-day thriller at Brussels,” was the assessment of the center-left Ta Nea newspaper. “Support from the EU and the IMF and a golden gift from Trichet.”

Economists said the move was good news for Greek banks and would also make it easier to persuade investors to buy its bonds — crucial given that it need to raise 16 billion euros, equating to more than 6 percent of the country’s entire economic output, between now and the end of May alone.

“The (euro zone) agreement was positive but even more positive was Trichet’s move on the collateral threshold for Greek government bonds,” said Spyros Pantelias, vice chairman of Hellenic Postbank. “This was the big news of the day.”

Shares in Greece’s banks jumped 7 percent on Friday morning as conservative daily Eleftheros Typos summarized Thursday’s events as a “Lifejacket from Trichet and gallows at the IMF.”

Financial website concluded “Trichet saves us.”


Pantelias doubted the impact of the EU support mechanism and the continued specter of International Monetary Fund involvement would do much to reduce Greece’s inflated borrowing costs — twice those of Germany — significantly in the near future.

He predicted the 10-year Greek bond yield spread over German bunds would return to about 290-295 basis points versus 323 basis points on Thursday and a January peak of 405.

That indicated it might take rather more to settle market jitters than Finance Minister George Papaconsantinou’s assertion following Thursday’s agreement that it had removed the risk of Greece defaulting on its debt.

Few economists believe Greece will default but, along with credit ratings agencies, are persuaded that to bring down borrowing costs Athens will need to show in the coming months that it is committed to its budget goals and can deliver meaningful reforms addressing corruption and inefficiency.

Greek Prime Minister George Papandreou told the European Parliament last week that he was already implementing IMF-style reforms and that he had reassurances from the Washington-based global lender that it would have asked for nothing more.

Others are not so sure that will last, however, should Greece end up resorting to it for support.

“It appears that in some political circles there are concerns an IMF deal could impose harsher measures relative to those already announced,” said Platon Monokroussos, economist at EFG Eurobank. “It remains to be seen.”

Investment Research

(Writing by Paul Hoskins; editing by John Stonestreet)

Greeks see no quick fix from EU safety net