Germany Said to Accept Greek Loan Compromise as Ministers Meet
By John Fraher and Brian Parkin, April 11, 2010,, (Bloomberg) --
Germany is prepared to give Greece loans at below-market interest rates, dropping its opposition to subsidies as European finance ministers meet to discuss the terms of a lifeline for the debt-stricken nation, a European government official said.
The loans would be priced above the rate charged by the International Monetary Fund, which would also participate in an EU-led rescue, said the person, who spoke on condition of anonymity. Such an arrangement would satisfy German demands that Greece shouldn’t be given subsidized loans, the person said. EU finance ministers will hold a press conference after a teleconference that starts at 2 p.m. in Brussels today.
German resistance to subsidized loans threatened to hold up efforts to agree on a rescue package for Greece, whose bonds plunged last week. With German Chancellor Angela Merkel balking at the use of taxpayers’ funds, her government has said that the EU should stick to a March 25 agreement that credit to Greece should be at “non-concessional” rates.
“They have to be given some help from Europe or the IMF at concessional rates,” billionaire investors George Soros said in an interview on Bloomberg Radio yesterday in Cambridge, England. “It is a make or break time for the euro and it’s a question whether the political will to hold Europe together is there or not.”
European Commission spokesman Fabio Pirotta couldn’t given an exact time for the press briefing by the eurogroup, which also includes European Central Bank President Jean-Claude Trichet. Ministers may today agree to the formula for calculating the loans, the European government official said.
Terms of Agreement
Under the terms of the March accord, Europe would provide more than half the loans and the IMF the rest, which would be triggered if Greece runs out of fund-raising options. UBS AG economists estimate Greece will need to seek emergency funding to make bond payments and cover debt refinancing of more than 20 billion euros ($27 billion) in the next two months.
The yield on Greek 10-year bonds surged 60 basis points this past week, driving it to a record 7.364 percent on April 8. Any IMF loans to Greece may cost around 3.26 percent. The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points April 8, before sliding to 398 basis points a day later.
The euro, which has dropped 6 percent against the dollar this year, rose 1 percent to $1.35 on April 9 as speculation about an aid package mounted.
German Resistance
Overcoming German resistance to subsidized loans came amid mounting speculation that that a bailout was imminent. UBS says it could come this weekend as Fitch Ratings cut Greece’s debt rating yesterday to BBB-, just one level above junk. Greek Prime Minister George Papandreou has argued that he needed below- market borrowing costs to cut EU’s-biggest budget deficit.
Papaconstantinou said April 9 that Greece still wasn’t seeking EU aid and would make good on its pledge to trim its deficit from about 13 percent last year, more than 4 times the EU limit, to 8.7 percent this year.
Greece needs to raise 11.6 billion euros to cover debt that is maturing before the end of May and plans to sell bonds to U.S. investors in the coming weeks. The country’s debt agency said yesterday it would offer 1.2 billion euros of six-month and one-year notes on April 12.
Greece’s long-term foreign and local currency issuer default ratings were on April 9 cut two levels to BBB-, the same level as Bulgaria and Panama, from BBB+ by Fitch Ratings. The outlook is negative, Fitch said, citing delays in agreeing to an aid package.
Confidence ‘Undermined’
“The lack of clarity regarding the mechanism for timely external financial support may have hindered Greece’s access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets,” Fitch said in an e-mailed statement.
The Athens benchmark stock index rose for the first day in four on April 9 amid speculation that an aid package would soon be agreed. It fell 5 percent this week.
EU leaders, including French President Nicolas Sarkozy and the Herman Van Rompuy, president of the 27-nation bloc, expressed their readiness to provide aid two days ago.
“A support plan has been agreed and we are ready to activate at any moment to come to the aid of Greece,” Sarkozy said.
--Editors: James Hertling, John Fraher
To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
