Greece close to bailout plea

GREECE faced crushing lending rates in financial markets yesterday ahead of urgent talks with the head of International Monetary Fund – in a move seen as a step closer to requesting bailout loans to halt its government debt crisis.

• US bound: George Papaconstantinou. Picture: Getty

Finance minister George Papaconstantinou said he will travel to the United States on Friday to hold talks with IMF chief Dominique Strauss-Kahn as well as US treasury secretary Tim Geithner.

Greece is urgently seeking to hammer out details of a rescue package that involves the IMF. Other countries using the euro have already pledged 30 billion in loans but have not spelled out any longer-term commitments.

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Negotiators from the IMF and European Union are due in Athens today to start ten-day talks on a potential "multiyear programme".

Struggling to cope with a debt of 300bn, Greece needs to borrow about 54bn this year alone and has a projected public debt of more than 120 per cent of gross domestic product through 2011, before easing slightly the following year.

Yesterday, Greece shaved its May borrowing requirement by raising 1.95bn in a 13-week treasury bill auction that was more than four times oversubscribed, the public debt management agency said.

But that good news was offset by a spike in unemployment, with 62,000 jobs lost in January raising unemployment to a five-year high of 11.3 per cent. And borrowing rates hit new records, as the interest rate gap, or spread, between Greek and German ten-year bonds hit 4.86 percentage points.

Greece says it cannot go on paying those high rates. The fact that rates are high indicates markets are still concerned the country will default on its massive debt pile. A default would be a serious blow to the shared euro currency and could hit the finances of banks holding Greek government bonds.

Martin van Vliet, senior economist for the eurozone at ING Bank, said markets remain worried about Greece's long-term default risk.

"I wouldn't bet on sharp decreases in Greek bond yields, especially those in the longer end of the maturity spectrum, given that the market will continue to reason that the risk of a default remains, even if the package is activated," he said. "The risk of default in the longer term – beyond next year, or the next two years – is still significant, according to the markets."

George Provopoulos, the governor of the Bank of Greece, also suggested markets remain unsettled by Greece's large debt and borrowing needs.

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"In the coming year, our borrowing needs will continue to be high – as they are this year – and this creates the perception that the public debt will continue to follow an upward trend instead of being stabilised," he said, adding that promised help from the eurozone and IMF was key to "restoring credibility".

In yesterday's sale, the treasury-bill yield stood at 3.65 per cent – more than double the rate offered at a similar sale in January.

But Mr Papaconstantinou appeared satisfied that money was still available on the markets.

He said: "The message of today's auction is that we raised 1.95bn, so our borrowing requirements for May have fallen below 10bn – and that's very important."