By: Mike Campbell
In all honesty, it was just a matter of time before the cost of raising finance through traditional means forced Greece to ask for the Eurozone/IMF emergency funding to be released. Greek has mountainous debts and has embarked upon a draconian set of austerity measures; it could ill-afford to be paying one Euro more to service its debts than it needed to.
Market doubts about Greece’s ability to honour its obligations had sent the yield on its bonds through the roof, storing up future misery for the country when those bonds fall due. With the market asking Greece to pay almost three times as much to raise funds to service its existing debt, something had to give. Greece made a formal application to invoke the emergency funding on Friday. The request is being considered by the Eurozone and IMF as a matter of urgency.
Speaking in parliament, the Greek finance minister, George Papaconstantinou told MPs that: "There is a critical date for Greece. It is the date when bonds of around 9bn Euros will reach maturity. Until then our borrowing needs are covered but the market conditions... are completely prohibitive for a new debt sale on the markets.” Greece needs to raise a further €9 billion by the 19th of next month to pay for maturing bonds. The minister refered to the current market rates as “prohibitive”.
The German Chancellor, Angela Merkel, has given her less than enthusiastic blessing to the Greek request, but has made it conditional upon Greece agreeing to unspecified, “tough measures” over the next few years. As Europe’s leading economy, the Germans have a vested interest in a stable and relatively strong value for the Euro, but domestic opinion is not warm towards bailing out Greece.