Pressure on Greece over its debt crisis eased on Thursday as it secured strong demand in a crucial bond sale ahead of the Greek prime minister's meeting with the German Chancellor Angela Merkel on Friday.
By Angela Monaghan, Economics Reporter
Published: 7:49PM GMT 04 Mar 2010
Greece was able to secure €5bn (£4.5bn) from the sale of 10-year bonds, in a sign that international investors were convinced by a €4.8bn austerity plan announced by the prime minister George Papandreou on Wednesday.
The Greek bond deal was over subscribed, with about €14.5bn of bids, but the cost of insuring the government debt rose reflecting the perceived risks of funding Greece's deficit.
"We are very happy with the bid because the re-entry into the market is always challenging. It went very well," said Petros Christodoulou, head of the Greek debt management agency.
Mr Papandreou is due to meet the German Chancellor on Friday to discuss the terms of EU support for Greece. The meeting is likely to be tense after political allies of Ms Merkel commented that Greece should consider selling some of its uninhabited islands to reduce its deficit, which is running at 12.7pc of gross domestic product.
Josef Schlarmann and Frank Schaeffler told a German newspaper that asset sales would be something Greece could do to help itself ease its financial troubles.
"Those in insolvency have to sell everything they have to pay their creditors. Greece owns buildings, companies and uninhabited islands, which could all be used for debt redemption," Mr Schlarmann, a senior member of Ms Merkel's Christian Democrats, told the Bild newspaper .
Meanwhile Moody's, the ratings agency, said Greece must execute perfectly the measures it outlined to reduce the deficit by an extra €4.8bn. If it fails to do so, the country faces a rating downgrade, Sarah Carlsson, a senior analyst at Moody's told Reuters.
She said: "Anything short of a perfect implementation would result in some form of rating action. The magnitude of that action [would be] proportionate to the kind of shortfall we're seeing.
"We want to see concrete evidence of implementation... The austerity plan provides certainty for 2010. But what is going to happen in 2011 and beyond is what we want to know."
Jean-Claude Trichet, president of the European Central Bank, said that he welcomed the additional measures announced by the Greek government - which include a VAT rise - and dismissed the idea that Greece may leave the monetary union as "absurd".
He made the comments after the ECB left interest rates unchanged at 1pc as expected. The ECB also outlined plans to further unwind some of the emergency measures it has put in place during the crisis.
"The ECB appears in no hurry to raise rates," said David Page, economist at Investec. "We remain comfortable with the view that the ECB will start draining markets more aggressively in the first half of 2011 before it tightens monetary policy around mid-year."
The central bank maintained its economic outlook, with Mr Trichet saying that the most likely outcome was recovery at a "moderate pace". However, he warned that the eurozone economy faced"continuing uncertainty."