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Greece passes latest test with debt sale
by Graeme Wearden and Helena Smith

George Papaconstantinou, the Greek finance minister, said the successful auction showed that Greece's recovery plan is on track

The €30bn (£26bn) bailout of Greece's economy passed its first major test today when an auction of government debt proved popular with investors.

The Greek government raised more than €1.5bn by selling short-term Treasury bills, more than the €1.2bn which had been expected. The auction came just two days after fellow European nations agreed to underwrite Greece's borrowing demands for the next year, in an attempt to help fix the country's debt crisis.

George Papaconstantinou, the Greek finance minister, said the successful auction showed that Greece's recovery plan is on track.

"We are sticking to our targets and I believe we will continue to borrow from markets smoothly, as we did today with the T-bills," Papaconstantinou said.
Colin Ellis, European economist at Daiwa Capital Markets Europe, agreed the bond sale would "boost hopes that Greece will be able to raise the funds it needs by itself", rather than accessing the bailout.

He added, though, that Athens faces a long battle to rebuild its economy despite today's success.

"Even once Greece gets past its immediate liquidity pinch, it still faces a long and painful adjustment to get the public finances under control and regain international competitiveness. As such, this story is set to drag on for years, not weeks," said Ellis.
And David Buik of BGC Partners said: "The panic is over but the crisis remains."
The Treasury bills are short-term debt which Greece promises to repay in either six months or a year. It sold them to help finance its deficit, which is running at more than 12% of GDP.

The offering of six-month T-bills was covered 7.67 times, making it much more oversubscribed than a similar auction in January, while the 12-month bonds were covered 6.54 times. The yields on the two bills - a measure of the interest rate that Greece agrees to pay investors who buy its debt - came in at 4.55% for the six-month bonds and 4.85% for the 12-month ones.

Although this is a much higher yield than other countries pay on their debt, it is less than feared.

"The yield on this short-term debt was 2% in January, but by the end of last week it was up to 7%," Steven Major, of HSBC's fixed income strategy team, told Bloomberg ahead of the auction. "These bonds should sell for around 5%. It would be madness if it was over 5%."

Will Greece need bailing out?

Over the weekend, Europe's finance ministers agreed to lend €30bn to Greece at a rate of around 5%. This commitment could mean there is little risk of Greece defaulting on its debts in the short term. If Greece can keep borrowing at acceptable rates then it may not need to tap the European bailout at all.

Later this month Greece is due to auction more Treasury bonds, but a bigger test is on the horizon – it hopes to sell a dollar-denominated bond valued at up to $10bn next month.

Greece still faces major long-term challenges, including the need to borrow around €53bn in the current financial year.

"The real test will come when Greece comes to the market with a five or 10-year bond," said Major. "Those longer-dated bonds will need to stand on their own two feet."

On Monday bond trader Pimco warned that it would not buy Greek debt, as it does not believe the eurozone rescue plan goes far enough to address the country's underlying economic problems.

Speaking before the auction, Greek prime minister George Papandreou said with the dilemma of high yields seemingly over, he would be less concerned with issues such as the spread between Greece's debts and that of other countries such as Germany.

"I no longer want to concern myself with spreads but with the economy's next steps," the socialist leader said, referring to the much-needed reforms his government has pledged to enforce.

Papandreou is acutely aware that without moves to dismantle the state apparatus, liberalise the economy and overhaul the tax and pension systems, the country's international performance and competitiveness may never be improved - and markets ultimately never appeased.

The Greek prime minister has demanded that his cabinet accelerate the reform process so that major policies are implemented by the time Greece is re-assessed by the EU in mid-May. The first structural reform – a major tax bill – will be debated in parliament this evening.

transcrito, com a devida vénia, de The Guardian, 13/04/2007