Greece raises $2 billion, signaling investor relief

By Anthony Faiola
Wednesday, April 14, 2010

LONDON -- In a test of investor confidence, Greece on Tuesday successfully raised $2 billion, but at interest rates still considered too costly for the government in Athens to pay in the long run.

Nevertheless, the strong market demand for Greek bonds appeared to underscore a measure of investor relief after key details were released Sunday of a standby aid deal from the European Union. With the promise of a lifeline of at least $40 billion if it cannot raise cash on international markets, the debt-laden Mediterranean nation is now operating with a safety net that has eased some fears of a default there.

The bond sale raised the prospect that the government in Athens might continue to tap capital markets in the weeks ahead rather than immediately accept a bailout. Greece initially sought to sell $1.62 billion in debt, but it was able to raise more because of excess demand.

Although Greece was forced to pay out a relatively high interest rate of 4.55 percent, that rate was still significantly below what was expected after rates for Greek debt spiked last week to a decade high.

By comparison, the E.U. is offering $40 billion to Greece at interest rates of around 5 percent if the government there is boxed into a financial corner. The International Monetary Fund is expected to offer an additional $20 billion at lower rates, but accepting those funds is still seen as politically embarrassing for Athens and would probably force it to impose even tougher austerity measures to bring down its gaping budget deficit.

Nevertheless, analysts remain skeptical about Greece's prospects of avoiding a financial rescue. The rates at 4.55 percent, experts say, are still too high for Greece to keep paying in the months ahead. Athens must raise $44 billion this year to keep the government running, including $15.6 billion by the end of May.

The only thing likely to bring those rates down now is keeping its promises to cut the budget, analysts say. But some doubt that Greek officials will manage to meet the targets they have set for themselves.

"This sale was too small to be a major indication of confidence, but at least there wasn't a negative surprise," said Ioannis Sokos, bond analyst at BNP Paribas in London. "But there is no way Greece can keep paying 4.55 percent for the next six months. That is still unsustainably high."

Sokos and others cited investor concerns that European officials have still not spelled out the conditions under which they would be willing to offer Greece the promised sums.

"We still don't know what the trigger is," Sokos said. "Does Greece need to fail at auction? Or just make a request? We need more clarification."

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