Greece close to aid as bond yields surge

City A.M. Reporter
GREEK borrowing costs hit a 12-year high yesterday as Athens prepared to launch talks on an EU/IMF bailout package aimed at rescuing Greece from a debt crisis rocking the eurozone.

The yield on Greek ten-year government bonds rose to 7.807 per cent, more than double the level for German debt and far beyond the level that Greece can afford to pay if it is to get through its debt crisis.

Ten days of talks will begin today on the belt-tightening measures Greece must take until 2012, the European Commission said, paving the way for the swift payout of up to €30bn of eurozone emergency aid if Athens asks for it.

Discussions had been due to start on Monday but fell victim to the ash cloud that has closed much of Europe’s airspace, unnerving markets made more jittery yesterday by data showing Greece’s unemployment rate had risen sharply and its current account deficit widened.

Unemployment rose to a six-year high at 11.3 per cent in January, from 10.2 per cent in December and compared to 9.4 per cent in January 2009.

Finance minister George Papaconstantinou said Greece would decide whether to trigger the aid mechanism or tap markets depending on borrowing costs and the progress of negotiations.

However, he said there was “no chance” the country would fail to cover its borrowing needs for May, after it paid a euro lifetime high of 3.65 per cent earlier yesterday to attract buyers for €1.95bn of 13-week Treasury bills.

“We now expect Greece to have to tap some form of external aid to get through May... (but) until you actually get that announcement you could see spreads continue to drift,” said Colin Ellis, European economist at Daiwa Capital Markets.

The yield at yesterday’s Treasury bill auction more than doubled to 3.65 per cent from 1.67 per cent at the previous auction of the paper on 19 January. The auction was five-times subscribed.