Greece returns to bond markets with a bang

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Associated Press

Posted on April 10, 2014 at 11:02 AM

Updated Thursday, Apr 10 at 6:00 PM

ATHENS, Greece (AP) — Buoyant Greek officials hailed the country's return to the international debt market after four years as an overwhelming success Thursday, with investors snapping up the five-year bond in a sale that was eight times oversubscribed.

The finance ministry said it had raised 3 billion euros ($4.14 billion) with a 4.75 percent coupon — a lower borrowing rate than the five percent initially hoped for.

The sale is a milestone for Greece. It has been locked out of the markets since it nearly went bankrupt in 2010, when its borrowing rates spiked upon the revelation that its public debt was much larger than previously estimated.

"The reception of the five-year bond has exceeded all expectations," Prime Minister Antonis Samaras said in a televised statement. "International markets have expressed, beyond any possible doubt, their confidence in the Greek economy."

Samaras said the strong result would bolster investors' confidence in Greek debt, allowing it to borrow at cheaper rates in the future. He cautioned, however, that the country still had "quite a way to go to emerge definitively from the crisis."

Greece has been relying on funds from international bailouts since May 2010 — in return for which it has imposed a series of deeply unpopular spending cuts and tax hikes.

The bond issue came a day before German Chancellor Angela Merkel was expected in Athens on a brief visit to meet with Samaras. Germany has been the single largest contributor to Greece's bailout, but is also largely resented by many Greeks for pushing the austerity agenda.

Security will be tight for the visit, with protests banned in large parts of the city center.

Hours before the bond issue, a car bomb exploded in central Athens before dawn outside a Bank of Greece building, causing damage but no injuries. Anti-terrorist police were investigating the attack, for which there was no immediate claim of responsibility.

The European Commission, the EU's executive arm, hailed the country's return to the bond market, but cautioned against complacency.

"Today's successful bond issuance is a first but clear step in restoring market access for Greece," said European Commission Vice-President Siim Kallas in Brussels. "However, it should also be a reason to stay the course of reforms and strengthen the recovery underway."

International Monetary Fund managing director Christine Lagarde described the sale as "an indication that Greece is heading in the right direction, and that the water testing that the authorities wanted to do is really successful."

Greece had initially sought to raise 2.5 billion euros, but got offers of about 20 billion euros. Nearly 90 percent of the sale was to international investors.

The success was possible thanks to a fall in Greece's borrowing rates in recent months as public finances improved following years of painful austerity measures. The country has also benefited from the European Central Bank's offer in 2012 to backstop eurozone countries' government bonds, which helped bring borrowing rates down across the currency zone.

However, ratings agencies still consider Greek bonds to be far from investment grade, giving them a junk status. The country has not committed to regular auctions of long-term debt, and still draws funds from its bailout from the International Monetary Fund and other eurozone countries, which expires at the end of this year.

Economists at prominent think tanks in Germany noted investors were likely cheered by the fact a further writedown on Greece's debt looks unlikely. Private investors holding Greek government bonds suffered losses of about 75 percent during a debt reduction scheme in 2012.

"Against this background, I wouldn't overestimate this success, which is certainly very pleasing," said Ferdinand Fichtner of the German Institute for Economic Research said. "I think what is more important is that the political situation in Greece ... proves to be stable — that, I think, is what in the medium to long term will restore the confidence of capital markets."

The efforts to heal public finances have come at a high cost for society. Greece has seen its unemployment rate skyrocket and a quarter of its economy wiped out.

But there was some — if small — improvement on that front, too. Figures released Thursday showed the unemployment rate dipped to 26.7 percent in January from 27.2 percent in December in seasonally adjusted terms. It was the fourth consecutive monthly drop.

Former Socialist Prime Minister George Papandreou, who negotiated the first bailout for Greece in 2010, urged the country's political parties to seek consensus in abandoning practices that led to decades of overspending.

"No matter how many positive developments there are in fiscal terms, Greece's future stability and security is not guaranteed unless we continue the difficult reform process," Papandreou said in a statement e-mailed to The Associated Press late Thursday.

"It would be a great shame if, two years from now, we were back in the same position, held back by the same entrenched attitudes."

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Geir Moulson in Berlin and Raf Casert and Juergen Baetz in Brussels and Derek Gatopoulos in Athens contributed to this report.

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