Greek borrowing costs spike despite aid pledge

[April 26, 2010]  ATHENS, Greece (AP) -- Financial markets upped the pressure on debt-ridden Greece on Monday, as investors remained skeptical about its long-term solvency despite assurances that a rescue loan will help pay off a chunk of debt in coming weeks.

The gap between Greek and benchmark German 10-year bond yields reached a record 6.32 percent Monday. This means that were the government to try to raise money on the markets, it would have to offer interest approaching 10 percent -- three times what economic powerhouse Germany pays.

Greek stocks plunged, with the benchmark General Index on the Athens stock exchange down 3 percent at 1,802.44 points in midday trading.

Finance Minister George Papaconstantinou said Sunday a rescue package from countries using the euro and the International Monetary Fund will allow the country to redeem some euro8.5 billion ($11.3 billion) in 10-year bonds expiring May 19.

Squirming between a massive budget deficit and a euro300 billion public debt, which shocked Greece's EU partners and alarmed markets, the center-left government initially vowed to continue raising cash through debt issuance.

But spiraling borrowing costs forced Athens last week to request activation of a euro40 billion ($53 billion) financial aid package from the other 15 states using the euro and the IMF.

Papaconstantinou said he expected the IMF board would approve its portion of the loan support -- around a quarter of the total -- in the first 10 days of May. He said if some European parliaments were delayed in approving their contributions, the IMF support could be used to obtain bridge financing from other sources.

Papaconstantinou will brief Parliament on the bailout later Monday.

Unions oppose the rescue plan and expected new austerity measures. Ferries were confined to port Monday by a 24-hour seamen's strike against reforms meant to boost cruise tourism. On Tuesday, Athens public transport workers will walk off the job for six hours, while the main civil servants' union, ADEDY, is planning a protest rally in the evening.

[Associated Press]

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.