Greece raises $2.3 billion after rating cut

AP News
Posted: Mar 08, 2011 11:08 AM
Greece raises $2.3 billion after rating cut

Greece raised euro1.625 billion ($2.28 billion) in an auction of treasury bills Tuesday, though the higher interest rate it has to pay showed investor unease a day after the country's credit rating was downgraded sharply.

In return for selling the 26-week bills, Greece had to pay an interest rate of 4.75 percent, the Public Debt Management Agency said. The rate was up from the 4.64 percent it had to pay in a similar auction last month, but lower than the 4.90 percent demanded in January.

Though investors wanted a higher rate in return for their cash, the Greek government still managed to raise more than the original offer of euro1.25 billion. Demand was relatively healthy, with the auction 3.59 times oversubscribed.

Tuesday's sale came after Moody's slashed the debt-ridden country's junk rating by three notches to B1, prompting a furious riposte from the Greek government, which described the move as "completely unjustified."

Greece began short-dated treasury bill sales last September to maintain a presence in the market after its debt crisis sent interest rates for longer-term money soaring, effectively blocking the country from the bond market.

The country was saved from bankruptcy by last May's euro110 billion ($154 billion) three-year bailout loan package from the other EU countries that use the euro and the International Monetary Fund.

Under the conditions of the deal, Greece has been implementing a raft of unpopular austerity measures _ including public sector pay cuts, an overhaul of the pension system and tax hikes _ and is being closely supervised by the IMF and EU. Funds from the rescue loans are paid out quarterly, after a team of inspectors verifies the country is meeting the conditions of the agreement. The EU and IMF are expected to officially approve a euro15 billion installment _ the second largest of the program _ this month.

Greece was the first eurozone country to need a bailout, and has since been joined by Ireland.

Athens hopes to negotiate lower interest rates and extensions in the repayment schedule for the loans. The EU may offer such concessions as part of a comprehensive solution to the debt crisis expected to be unveiled at a March 25 summit in Brussels.

Prime Minister George Papandreou began meetings with opposition leaders Tuesday ahead of the summit, seeking support at home for what he has described as a national effort to pull the country out of its financial crisis.

Papandreou said only a comprehensive solution would be satisfactory.

For his part, Antonis Samaras, the head of the main conservative opposition party, called for a "drastic change" in the terms of the bailout loan, saying the conditions of the deal were strangling the Greek economy.

He said he supported proposals including the reduction of the bailout loan interest rate and the extension of the repayment schedule.

"For us it is self-evident that even if we ensured favorable decisions for the handling of the debt, as for example in a (repayment) extension, this alone won't solve the problem," he said. "Because the problem today is the suffocation of the Greek economy itself by the memorandum."

Aleka Papariga, the head of the Communist Party which has backed many of the frequent strikes protesting the austerity measures, insisted that "there can be no consensus" and said Greeks could expect more harsh measures ahead.