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The yield spread remained above 990 basis points for the third day in a row, the recession in Greece reached 4.6 per cent

07 January 2011 / 17:01:17  GRReporter
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Greek yield spread remained above 990 basis points for the third day in a row and the trend is to pass the psychological barrier of 1000 bps any time. This is its highest value since the entry of Greece into the euro area. The yield spread shows the difference in interest rates between the ten-year Greek and German benchmark bonds. Its high levels mean in practice lack of any interest by investors to buy government securities. A fact which makes the intention of the Greek government to come out on the international financial markets in 2011 almost impossible.

Increasingly widespread forecasts for Greek debt rescheduling and expected haircut by the creditors of the country, among which the Greek banks have the biggest share, led to the collapse of the Athens Stock Exchange index to its lowest level in 14 years. The shares of Greek banks depreciated on average by 3 per cent in one day, only on Wednesday. The shares of the National Bank of Greece fell to 6 euros, and the shares of Piraeus Bank lost 11.76 per cent of their value in just one day after its managing body announced its plan to increase the authorized share capital. The plan was approved by the capital market supervising authority and should be completed by February 17.

"The market believes that Moody's and Fitch would lower the credit rating of Greece," predicts the analyst Nikos Galusis from Kappa Hrimatistiriaki, quoted by Imerisia newspaper. "Low confidence in the development of the Greek economy and the ability of companies to gain profits create psychology of risk and suppress the desire to buy shares of attractive low prices," explains the current situation Dimitris Dzanas from Proton.

The sharp decline in banking services demand made Greek banks cut operational costs in all possible ways - some close branches, others offer voluntary redundancy to staff, third lower salaries, fourth optimize supply. For example, Piraeus Bank has proposed sabbatical program at the end of the last year following major international companies that offer employees long-term paid leave after a number of years of service or after completion of a particularly complex project. In this case, Piraeus Bank has offered its employees to pay 50 percent of their salaries for the next 2 or 3 years if they don’t work for the bank. 180 people were involved in the proposed program and it will save the bank 3 million euros a year in the next 3 years.

Citibank also has proposed voluntary redundancy to the staff in parallel with the decision to close 31 of the 72 branches in Greece. 200 employees have benefited from the proposal. Agricultural Bank of Greece cut the salaries of its employees by 10 percent as of January 2011. The trend of bank savings will further strengthen in the new year.

The news from Brussels put a wet blanket on Athens too. The European Commission released today Eurostat estimates on the state of the European economies. Greece’s recession in in 2010 reached 4.6 per cent exceeding the nine-months estimates of 4.5 per cent decline in GDP.

Tags: Yield spreadAthens Stock ExchangeGreek banksPiraeus BankSabbatical program Recession
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