GREECE AND Spain took steps yesterday to stem rising bond yields amid investor fears of a Greek debt default and concerns about the weakness of the Spanish economy.
The biggest falls were in the Greek, Irish and Portuguese bond markets because of rising fears that all three countries would have to restructure their debt. Yields on Irish 10-year bonds hit 10.882 per cent at one point.
The Greek government announced last night that it would sell stakes in key state-controlled companies and create a sovereign wealth fund, to stem criticism it has delayed measures to raise revenues and cut spending.
Finance minister George Papaconstantinou said in a statement that the cabinet had “reaffirmed its determination to continue with the fiscal consolidation programme”, by taking measures amounting to more than €6 billion, or 2.8 per cent of gross domestic product, to achieve a 7.5 per cent cut in the deficit by this year.
He said detailed measures would be announced when the “troika” of officials from the European Commission, European Central Bank and the International Monetary Fund completed their review of Greece’s economic policy, expected next week.
The government would immediately proceed with the sale of stakes in OTE Telekom, Postbank, the ports of Athens and Thessaloniki, and the Thessaloniki water company “in order to frontload its ambitious privatisation programme”, he said. The government gave no indication of the price it expected for these assets, and no firm timetable.
A sovereign wealth fund composed of privatisation and real-estate assets would speed up the process, he added.
In Spain, central bank chief Miguel Ángel Fernández Ordóñez said Spain should not accept the current high cost of financing its sovereign debt for too long because the economy would be deprived of much-needed credit.
Addressing a business conference the day after the governing Socialist Party suffered heavy defeats in regional and local elections, Mr Ordóñez said the country should continue to cut its budget deficit and implement economic reforms rather than waste time blaming “wickedness and greed” in the financial markets.
“We should not accept having to pay a spread [between Spanish 10-year bonds and benchmark German bunds] of the order of 200 basis points for long,” he said.
“This not only increases the share of public spending devoted to interest payments, but above all could end up making it hard to finance companies.”
Italian bonds came under early pressure as investors reacted to a warning late on Friday from Standard Poor’s over the country’s credit rating. SP said it had cut the outlook on Italy’s A-plus rating to negative because of worries over the economy. Tensions eased after Silvio Berlusconi’s centre-right government said it was preparing a package of cuts and revenue-raising measures for the next two years with the aim of balancing Italy’s budget by 2014.
John Wraith, fixed-income strategist at BofA Merrill Lynch, said: “It is like a group of climbers roped together. As Greece slips, it pulls down other countries such as Spain and Italy.” – Copyright The Financial Times Limited 2011
