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OECD: Greek Bond Spreads To Remain Constant Through 2011
ATHENS (Dow Jones)--Greek government borrowing costs are expected to remain high for the rest of this year and will not fall until 2012, the Organization for Economic Cooperation and Development said Wednesday.
In its latest economic forecasts, the OECD said that Greece must press ahead with its fiscal and economic reforms in order to restore market confidence and jump-start its recession-ravaged economy.
Those reforms, combined with additional aid from other European governments and the International Monetary Fund, should lead to lower borrowing costs--as reflected in the interest rate spread between Greek government bonds and benchmark German counterparts.
"In the projections, this spread is assumed to remain constant for the remainder of 2011 and then to fall in 2012 as the fiscal and structural programmes bear fruit, raising confidence, or perceptions increase that additional official financing would be forthcoming, if needed," the OECD said.
In May last year, Greece narrowly avoided default with the help of an EUR110 billion bailout from its fellow euro-zone members and the IMF in exchange for far reaching fiscal and economic reforms.
Since then, Greece has narrowed its budget deficit by about a third, to 10.5% of gross domestic product last year, but has so far failed to gain investor confidence that it will be able to service its giant public debt.
Faced with prohibitively high borrowing costs on international markets, Greece is seeking a further EUR60 billion in aid to cover its financing needs for 2012 and 2013 when money from the current loan package runs out.
In early trade Wednesday, the yield on 10-year Greek government bonds was 16.8%, while the spread over similar duration German bunds was 1376 basis points.
In its forecast, the OECD said that Greece was on track to meet its deficit goal of 7.5% this year, and 6.5% next year, taking into account fresh austerity measures that the government announced in April after missing its deficit targets last year.
"The OECD projection is for a deficit of 7.5 per cent of GDP in 2011 and 6.5 per cent of GDP by 2012--similar to the official targets under the EU/IMF economic programme," the OECD said. "The projections take into account the additional measures announced in April 2011 by the government to offset the fiscal slippage in 2010."
The OECD also projected that Greece's economy--now entering its third year of recession--would shrink by 2.9% this year, before posting modest 0.6% growth in 2012.
The forecast, is slightly better than the European Commission's expectations for the Greek economy this year, but weaker than its forecast for 2012.
In a report issued earlier this month, the Commission says it expects the Greek economy to contract 3.5% in 2011 and grow 1.1% in 2012.
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Previsioni OCSE.
ATHENS (Dow Jones)--Greek government borrowing costs are expected to remain high for the rest of this year and will not fall until 2012, the Organization for Economic Cooperation and Development said Wednesday.
In its latest economic forecasts, the OECD said that Greece must press ahead with its fiscal and economic reforms in order to restore market confidence and jump-start its recession-ravaged economy.
Those reforms, combined with additional aid from other European governments and the International Monetary Fund, should lead to lower borrowing costs--as reflected in the interest rate spread between Greek government bonds and benchmark German counterparts.
"In the projections, this spread is assumed to remain constant for the remainder of 2011 and then to fall in 2012 as the fiscal and structural programmes bear fruit, raising confidence, or perceptions increase that additional official financing would be forthcoming, if needed," the OECD said.
In May last year, Greece narrowly avoided default with the help of an EUR110 billion bailout from its fellow euro-zone members and the IMF in exchange for far reaching fiscal and economic reforms.
Since then, Greece has narrowed its budget deficit by about a third, to 10.5% of gross domestic product last year, but has so far failed to gain investor confidence that it will be able to service its giant public debt.
Faced with prohibitively high borrowing costs on international markets, Greece is seeking a further EUR60 billion in aid to cover its financing needs for 2012 and 2013 when money from the current loan package runs out.
In early trade Wednesday, the yield on 10-year Greek government bonds was 16.8%, while the spread over similar duration German bunds was 1376 basis points.
In its forecast, the OECD said that Greece was on track to meet its deficit goal of 7.5% this year, and 6.5% next year, taking into account fresh austerity measures that the government announced in April after missing its deficit targets last year.
"The OECD projection is for a deficit of 7.5 per cent of GDP in 2011 and 6.5 per cent of GDP by 2012--similar to the official targets under the EU/IMF economic programme," the OECD said. "The projections take into account the additional measures announced in April 2011 by the government to offset the fiscal slippage in 2010."
The OECD also projected that Greece's economy--now entering its third year of recession--would shrink by 2.9% this year, before posting modest 0.6% growth in 2012.
The forecast, is slightly better than the European Commission's expectations for the Greek economy this year, but weaker than its forecast for 2012.
In a report issued earlier this month, the Commission says it expects the Greek economy to contract 3.5% in 2011 and grow 1.1% in 2012.
***
Previsioni OCSE.
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