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In bond sale, Greece raises $6.74b

1st borrowing test since rescue plan

Prime Minister George Papandreou at last week’s EU summit, where Greece was promised help if it can’t borrow or pay its debts. Prime Minister George Papandreou at last week’s EU summit, where Greece was promised help if it can’t borrow or pay its debts. (Geert Vanden Wijngaert/ Associated Press)
By Derek Gatopoulos
Associated Press / March 30, 2010

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ATHENS — Greece raised $6.74 billion yesterday with a seven-year bond issue, in a crucial first borrowing test after the euro zone unveiled a rescue last week to help Athens cope with its acute debt crisis.

But the government’s borrowing costs remain higher than it wants.

The bonds were sold at a coupon yield of 5.9 percent, according to a statement from the government’s Public Debt Management Agency. State-run media said around $9.4 billion in offers were received.

The high yield comes before April and May deadlines to refinance about $27 billion in debt, with total borrowing needs at $72 billion this year.

Finance Minister George Papaconstantinou said he was satisfied with the sale.

“When you go to the market and draw the amount of money you want at a rate that is reasonable, given the current levels — then, under those circumstances, I’m happy,’’ Papaconstantinou told state-run NET television.

The issue proves Athens can still access bond markets. But Greece is still borrowing money at roughly twice the cost of Germany, and the government has repeatedly warned that the high rates are unsustainable. Greece had raised nearly $7 billion earlier this month, selling 10-year bonds on a punishing yield of 6.3 percent.

Last week, the 16 euro zone countries promised loans together with funding from the International Monetary Fund, to assist Greece if it is unable to borrow or pay its debts. The European Central Bank also extended relaxed rules that keep downgraded Greek bonds eligible.

Papaconstantinou said he expected bond yields to come down gradually.

“I think it would be a big mistake to believe that a few days after the decisions at the [EU] summit and by the European Central Bank that the bond spread would collapse. That’s not what we expected,’’ he said.

“We know that the spreads will have a gradual tightening, and more or less tighten the most after Greece passes the difficult stage of April and May.’’

Greece toughened its austerity program to win over the support of European governments, announcing an additional $6.5 billion in spending cuts and taxes earlier in March, including wage cuts for civil servants that have angered unions.

The financial crisis in Greece, whose budget deficit stands at 12.7 percent for 2009 — four times over the European Union limit — has rocked the euro. Athens hopes the existence of the rescue package will restore market confidence and diminish fears of a Greek default, leading to a reduction in borrowing costs.

Government spokesman George Petalotis called the European rescue package a “significant success’’ that would hopefully deter further speculative attacks.’’

The Public Debt Management Agency had named Alpha Bank, Emporiki Bank, ING, Bank of America-Merrill Lynch, and Societe Generale as lead managers for the bond issue.