Greece Launch Critical Bond Sale; Protests Intensifies

Greek authorities have Thursday launched the sales of a series of 10 years bonds at a total amount of 5 billion euro. The bond sale marks a test of investor response to the troubled nations austerity measures. According to European media investors flocks towards the Greek bonds.

“Sentiment toward Greece has improved after the budget announcements and they’re taking advantage of that, while the pricing is pretty much in line with what we expected.”

Michiel De Bruin

Greece began Thursday the selling of 5 billion euros ($6.8 billion) in 10-year bonds after Prime Minister George Papandreou’s promises to reduce Europe’s largest budget deficit by cutting wages and spending.  Greek protesters have now occupied the country’s finance ministry.

The government is offering a premium to sell the new notes, pricing them at a spread of 300 basis points more than the mid- swap rate, or a yield of 6.39 percent. That compares with the 6.1 percent interest on Greece’s existing benchmark issue due July 2019, according to data compiled by Bloomberg.

The bond sale marks a test of investor response to Papandreou’s austerity measures. German Chancellor Angela Merkel snubbed his bid for assistance after he announced his third package of deficit cuts this year, saying a meeting in Berlin tomorrow won’t be “about aid commitments.”

“Sentiment toward Greece has improved after the budget announcements and they’re taking advantage of that, while the pricing is pretty much in line with what we expected,” said Michiel De Bruin, who helps manage $28 billion of assets as head of euro government bonds at F&C Investments in Amsterdam, and expects to invest in the deal.

The premium investors demand to buy Greek government debt over comparable German bonds, the European benchmark, rose 4 basis points to 2.90 percentage points at 11:26 a.m. in London after yesterday’s 19 basis point drop.

While Papandreou is risking a backlash at home to meet European Union demands for more cuts, Merkel is facing domestic opposition to tapping taxpayers to extend a financial lifeline to Greece.

“There would be no understanding in Germany for bailing out Greece,” Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin, says according to Business Week.

“It’s a bit of catch-22 situation: if you give in to Greece and you put 5 billion or perhaps even 10 billion into some kind of rescue package or into some guarantees, then the German government would look irresponsible. However, if it doesn’t, then European Union leaders might put a lot of pressure on Merkel and say, look, we have to bail out Greece.”

The EU is devising a plan to grant Greece about 25 billion euros in emergency aid should the need arise, German lawmakers have said, enough to cover the maturing debt. One option could involve using state-owned lenders such as Germany’s KfW Group to buy its bonds.

In Athens, about 200 members of the PAME union, aligned with the Communist Party, were reported at the finance ministry and protesters also took over the nearby General Accounting Office, according to a police spokeswoman. Another group blocked a central road, snarling traffic.

The demonstrations followed the Cabinet’s backing yesterday of 4.8 billion euros ($6.6 billion) of cuts and Papandreou’s statement that Greece was prepared to turn to the International Monetary Fund as a last resort.

“We have fulfilled to the utmost all that we must from our side; now it’s Europe’s turn,” Papandreou told his ministers yesterday, according to an e-mailed transcript.

“It is a historic moment for the European Union.”

Papandreou’s Cabinet endorsed a package of revenue-raising and budget-cutting steps, including higher fuel, tobacco and sales taxes and a cut of 30 percent in three bonus payments to civil servants on top of a wage and benefits freeze.

For now, European governments have not stepped up since a statement at a Feb. 11 EU summit promised “determined and coordinated action” to support Greece.

“There’s no need for such a thing at this point in time,” French Finance Minister Christine Lagarde said late yesterday on Sky television. “If it was required, the partners in the club would be available to restore stability.”

After meeting Merkel in Berlin, the Greek leader is due in Paris two days later for talks with French President Nicolas Sarkozy.

Merkel’s comments were the clearest signal yet that Germany isn’t convinced.

“I expressly want to say that Friday isn’t about aid commitments, but about good relations between Germany and Greece,” Merkel said yesterday in an interview with N-TV, according to a transcript provided by her office. Greece’s steps are “an important signal” toward restoring confidence in the euro.

Five major European banks – including National Bank of Greece – are conducting the bond sale.

Goldman Sachs is not among the dealers because of the controversy surrounding the Wall Street bank’s activities in Greece, Financial Times reports.

Related by the Econotwist:

Nervous Markets Ahead Of Greek Bond Sales

Swedbank Buy Greek Bonds With Estonian Money

Wave Of Protests To Hit Troubled E.U. States

Germany Failed To Pay WWII Compensation, Greek Minister Says

E.U. To Reform Economic Policy

Beginning Of The End For The European Union?

EU Wants Answers From Wall St. On Greek Debt

Why Should EU Bail Out Greece?

European Commision Warns Of “Lost Decade”

Traders Short Record Amount of Euro

European Markets Snap Shots











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