UK Business News

Greece’s woes returned to the fore last week following a period of relative quiet for the heavily indebted eurozone member. Following the country’s austerity package announced a few weeks ago, as the price to be paid for EU economic support, the bond market – where the government raises cash – had returned to some semblance of normality.

The apparent calm was illusory though because last week there was a sudden sell-off in Greek sovereign bonds which further pushed up the cost of borrowing for the embattled state to record levels.

Rumours circulated that Greece’s finance minister was trying to renegotiate the terms of the finance deal cobbled together by the EU and IMF – vehemently denied – which involved promises to provide rescue funds if the country failed to raise sufficient funds itself. Investors are worried that any involvement of the IMF will involve punitive measures, but were also unsettled by Germany’s continued insistence that Greece pays a ‘commercial rate’ for any EU loans.

Such terms would be unbearable for Greece and Berlin’s apparent intransigence merely exacerbated events, with the bond market in panic on Thursday – pushing up the cost of government borrowing to what would be crippling levels.

One side effect resulted in the euro falling against the dollar as investors headed for safer currencies. So, anxious to restore order as soon as possible, the European Central Bank eased the pressure on Greece’s troubled domestic lenders by loosening the rules on using government bonds as collateral for its loans.

With ratings agencies such as Fitch downgrading Greek bonds to almost junk status, the markets are convinced that the country will have to ask for help. “It is now up to the Greek Government to go publicly to the EU and IMF and ask for cash and support” said Chris Pryce at Fitch Ratings. Almost on cue news emerged that, according to EU eurozone officials, proposals had been put together for emergency funds to be made available at a pre-agreed interest rate that would help Athens,  according to The Financial Times.

Whilst the proposals have yet to be approved by political leaders, it was enough to change the mood – the local bond and equity markets swung from deep depression to wild enthusiasm as investors rushed to buy Greek stocks. The positive mood also enabled the euro to stage a recovery against the US$, completing the circle on a topsy-turvy Greek week.