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Greece sells bond debt to pay for... bond debt

Greece sells bond debt to pay for... bond debt
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Greece has hired five banks to sell a new seven year bond it hopes will help the country meet some imminent, mountainous interest payments.

It is the first offer of Greek debt since the EU and the IMF agreed a safety net, and has already attracted 7-billion euros in orders.

But Greece’s reputation as a borrower has forced interest rates up.

Greek economist Gikas Hardouvelis said: “The timing was fine, the Greek government had to test the market, and it is good that it did it right after the decisions that were taken last week by the European Council.”

Greece is the sub-prime borrower of Europe.
It owes 300-billion euros – that is 25 per cent more than the country turns out in a year – and potential lenders have got the jitters.

But just like the US sub-prime market, lenders are prepared to loan to this high-risk borrower, but the returns have to be high.

Oliver Roth from Close Brothers Seydler said: “Obviously a spread of more than 300 basis points together with guarantees from the IMF and the EU, is enough to sell the Greek bonds. But Greece has to pay more than 300 basis points more, which means they won’t be able to save the money in the national budget as quickly as they have to spend it via interest on the free market right now.”

From now till the end of May, Greece has to pay back 23-billion euros in maturing bond debt. But even after using its cash reserves, there is still 16-billion to be found.