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Greek spread-index reached 660 basis points!

26 April 2010 / 14:04:04  GRReporter
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Poor start of the week for the Greek economy, which is characterized by panic on the markets, decline of the Athens Stock Exchange and renewal of scenarios for the rescheduling of the Greek debt. Today the Greek spread-index reached 660 basis points, which is its highest value since 1998. The index indicates the difference in interest between the 10-year Greek government bonds and the German Bunds. On Friday, the value of the index was 588 basis points. The cds-insurance reached 619 basis points, which is a historical record. Portuguese insurance reached 288 basis points, which is also a historical record for them. This gave rise to analysts, who warned that Portugal is the next weak link in the eurozone, whose rescue is not as urgent as the Greek, but also should not be underestimated. 

Analysts explain the tension of the markets with the increasingly spreading rumors about rescheduling the Greek foreign debt - a thought that only 10 days ago sounded heretical, but today is a real possibility. New York Times even suggests different mechanisms of rescheduling the debt of Greece. One such is the so-called haircut or reduction of the amounts, which owners of maturing bonds will get. This option is considered the worst because it will mean that creditors should partially pay for the Greek economic crisis. The second option is to deferred payment of the bonds - this option is defined as better, but the newspaper warns that Greece must convince investors that it offers them the best solution and that they should support it. 

Talking to New York Times economist Carl Weinberg proposes to bring together all government bonds that expire in 2019 in a "money-box”, which will be financed by new bonds, this time with 25 years maturity. At 4.5 percent interest rate profits will be around €140 billion. Daniel Gross, director of the Center for European Studies in Brussels, proposes extending the period for payment of the bonds with five years and with the same interest. I.e. bonds with maturity of 5 years with annual interest of 6 per cent automatically will transform into bonds with 10 years maturity with the same interest. Thus, creditors of Greece will continue to receive their interest, but will have to wait another 5 years before getting back the money they invested in the Greek government securities. 

While international financiers second-guess how to rescue Greece from its difficult financial situation, Europe is still divided into two in terms of financial aid for the troubled economy. Italian Foreign Minister Franco Frattini, whose country is one of the following that will follow Greece called Germany to allocate money for Athens as soon as possible. However, Guido Vestervele, Minister of Foreign Affairs of Germany, told journalists in Luxembourg that his government has not yet made a decision on assistance to Greece. "The decision we will take, can be any," he said. Today in a special statement Chancellor Angela Merkel called on Greece for additional financial restrictions before receiving the German aid.

For its part, the European Commission today admitted that it has no idea when the negotiations between the Greek Government and the joint mission of the IMF, European Central Bank and European Commission, will be over. Therefore it's not surprising that today the Athens Stock Exchange is moving downward, and its index plunged by more than two percent and reached 1800 points. Biggest victims once again proved to be the bank shares.

Tags: Greece economy crisis IMF spread index cds insurance
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