Greece moves to reassure investors on reform
Kerin Hope in Athens and David Oakley in London
Published: September 12 2010 11:17 | Last updated: September 12 2010 17:59
Greece will launch a charm offensive in Europe this week to reassure investors the country is on track with crucial economic reforms to prevent a damaging government bond default that could trigger a deeper crisis in the eurozone.
George Papaconstantinou, finance minister, will lead a delegation including European Union, European Central Bank and International Monetary Fund officials to meet investors in London, Paris and Frankfurt. It will be Greece’s first roadshow since last December. That trip came a few weeks before spreads on its bonds hit record levels as investor confidence collapsed, and Athens tried in vain to persuade China, several Gulf states and India to buy Greek debt.
The meetings have been set up at a critical moment for Greece and the eurozone as investor confidence in the country and other peripheral economies wanes amid fears they may default on their debt.
Last week yields on Greek, Irish and Portuguese bonds rose sharply because of concerns over the likelihood of a default in Athens, the struggling bank sector in Dublin and the lack of reforms being initiated in Lisbon to turn around its economy.
Steven Major, head of global fixed-income research at HSBC, said: “The problems for Greece are that it is difficult to see how they can reduce their debt levels without a major debt restructuring. If sentiment deteriorates in Greece, it could hit the other weaker economies.”
George Papandreou, Greek prime minister, tried on Sunday to calm domestic worries about a default, “We are not even talking about it,” he said. “A restructuring would be catastrophic for the economy, for our credibility and our future.” Mr Papandreou said Greece was determined to press on with harsh reforms agreed with the EU and IMF in return for a €110bn bail-out package.
The roadshow is due to begin in London on Wednesday, the day after Greece returns to the capital markets to auction €900m ($1.1bn) of six-month Treasury bills. Greece plans to come to market every month rather than at three-month intervals. It hopes that making regular appearances in capital markets will boost confidence in Greece and bring down yields.
Petros Christodoulou, head of the agency, said, “It’s proper to have amore orderly and regular contact with the market . . . to avoid having a hump of borrowing every quarter.”
Greece still issues short-term debt of maturities of three, six and 12 months under the terms of its bail-out package.
Mr Papaconstantinou and his group face a difficult task reassuring investors that Greece is on track with deficit reduction and structural reform. Most investors appear convinced that Greece will have to default or voluntarily restructure its bonds because the debt level is unsustainable.
Even accounting for reforms, Greek debt levels are expected to rise to 150 per cent of gross domestic product by 2013 when the bail-out package ends. And the economy projected to shrink by 4 per cent this year and another 2.5 per cent in 2011. A restructuring would be the only way to reduce the debt but would mean heavy losses for many investors in bonds.
(Financial Times)
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