By: Mike Campbell
Despite many loud public assurances that the Greeks had no intention of asking the EU and IMF to release funds from the €30bn safety net agreed between Eurozone nations with backing from the IMF, it looks like the Greek government may do just that. The Greek authorities have been asking for more details of the bailout scheme and IMF officials were due in Athens yesterday for discussions. However, even nature is conspiring against the Greeks. The delegation has not been able to get to the Greek capital since much of European airspace has been closed due to the potential danger to aviation from the ash clouds produced by the erupting Icelandic volcano which are affecting much of northern Europe.
The Greeks have been at pains to explain that they intend to turn to financial markets to fund their debt problem as the austerity measures that they have put in place gradually relieve the debt burden. However, the market has priced risk (at quite a premium) into Greek bonds and the interest rate on Greek ten year bonds hit a Euro-epoch record yesterday of 7.6%. If the Germans went to the market to raise similar funds, they would be required to offer just 3% interest on their bonds to guarantee the success of the issue. One critical aspect of the Eurozone/IMF rescue plan that has yet to emerge is the interest rate that Greece would be charged if they drew on the provision. The chances are that it would lie within interest rate band from 3 to 7.6%, but would be at the lower end of the range. The Greeks can ill-afford to be paying too much to service their debt, so it is likely that they will call on the facility – they’d be crazy not to.