Wednesday, September 7, 2011

Doubts Escalate about Greek Rescue Deal

One rarely sees such cut-price offers on the financial markets. If you believe the assurances of European politicians, you can pocket a yield of 76 percent on Greek bonds due to mature in March. If parliaments in Europe give a green light to Greece's rescue package as expected, the debt-ridden country will be able to pay back these bonds in full.

But hardly anyone is buying the bargain-basement bonds. Investors are shunning them as being much too risky. They simply don't believe that the rescue package will be enough to save the country, which is threatened with bankruptcy.

Following the July 21 European crisis summit , investor nerves began to steady, but these days there is little optimism that there will be a happy ending to the Greek drama.

That is illustrated by the Greek bond market, which rallied shortly after the Greece crisis summit but which is now hitting new lows. Bonds which are due next March are currently selling for 70 percent of their nominal value, reflecting investor suspicion that Greece will not be able to fulfill the conditions attached to the rescue package. Athens has been given exact guidelines on budget deficit reduction, tax revenue targets and privatization of state-owned businesses. Up to now, however, the Greek government has fallen short of most of the measures. more