THE GREEK government’s drastic new austerity plan won a measure of market support and unqualified backing from European Central Bank (ECB) chief Jean-Claude Trichet as its finance minister called on EU leaders to specify how they might help the country surmount its debt crisis.
Premier George Papandreou seized on the positive response to the latest measures yesterday, sanctioning a 10-year €5 billion bond offer which attracted €14.5 billion in bids before the books closed. But with more than €20 billion of debt maturing in April and May, the risk premium investors demand to buy Greek bonds over German bunds rose 10 basis points to 298 yesterday.
Mr Trichet said the new budget plan was “very substantial” and convincing. “I am, as president of the ECB, making a very positive judgment on the decisions which have been taken.” He was speaking to reporters after the ECB’s governing council held its main interest rate steady at a historically low 1 per cent. As a result of Greece’s troubles, the bank extended its unlimited liquidity promise for longer than expected.
Ahead of a key meeting today between Mr Papandreou and German chancellor Angela Merkel, finance minister George Papaconstantinou said on local television that the EU should disclose the parameters of any aid package to help cut its deficit and discourage bets against its bonds.
“If they would be clearer in what way they’d help Greece if it were necessary, then Greece wouldn’t need support,” he said.
“What we are looking for are clear support mechanisms so markets can be assured they can’t play games at Greece’s expense.”
Although Dr Merkel has insisted that she and Mr Papandreou will not discuss special help for Greece, the new budget measures were crafted against that backdrop of discreet talks on a rescue mechanism should one be required. While Athens has not made a formal request for aid, the government wants EU leaders to make good on their pledge last month to provide unspecific ad hoc support “if needed”.
Asked whether the case for EU aid would be stronger if pressure on Greece persisted, Mr Trichet said he would not go further than the promise made by EU leaders and noted he endorsed it himself. “I take that commitment as a very, very important one.” He ruled out the prospect of any International Monetary Fund (IMF) intervention in Greece. “Let me add that I do not trust that it would appropriate to have the introduction of the IMF as a supplier or help to standby or any kind of such aid.
“The fact is that the conditionality inside the euro area has to be decided in our opinion by the peers according to the Stability and Growth Pact and the European framework as it functions.”
The ECB moved yesterday to narrow the range of its GDP growth forecast for the euro area this year to between 0.4 per cent and 1.2 per cent and revising upwards its 2011 forecast to between 0.5 per cent and 2.5 per cent. Mr Trichet said the bank will continue to lend banks unlimited amounts until mid-October. It will then revert to its pre-crisis auction-based approach of offering a set amount to banks when they borrow over three months.
Asked what this meant for Ireland’s banks, he said “exactly the same message” as for all lending institutions. “We consider that it was very important that they take appropriate occasions to reinforce their balance sheets in order to be fully able to do their job and their job is to supply credit and loans to the real economy.”
