RBS: Greek default this year

GREECE will default in December, according to analysts at RBS, as yields on the sovereign’s short-term debt reached a record yesterday.

As Eurozone finance ministers struggled to reach a deal on the collateral they will demand in return for Greece’s second bailout, market interest rates on its two-year debt shot to a new high of 53.2 per cent.

However, Athens managed to get through a short-term debt auction to refinance its maturing six-month bonds yesterday, selling €1.3bn. Seventy per cent of the debt was purchased by domestic buyers, most of whom are likely to be Greek banks that are required to hold government bonds to fulfil liquidity requirements.

Greece paid 4.8 per cent for the cash, 60 basis points above the rate it pays on its IMF/EU bailout loans. It is not known if the European Central Bank (ECB) intervened in secondary markets during the sale.

However, European leaders are finding it difficult to reach agreement over Greece’s second €109bn bailout. Finance ministers from Holland, Finland and Germany were meeting in Brussels yesterday to agree on a position.

Finland is leading the charge to demand collateral in return for new loans on top of the first €110bn rescue.

Leaders of the Eurozone’s paymaster economies are tasked with persuading their reluctant voters and parliaments to back a second rescue, despite Greece failing to meet any of the targets that were conditions of its first bailout. Securing collateral from Athens – in the form of state-owned assets, for example – could help to persuade legislators.