New 3-year economic stabilization programme-Key measures and assessment

Authors: Gikas Hardouvelis, Platon Monokroussos, Theodore Stamatiou
Publication: Focus – Greece, Eurobank Research, May 03, 2010

Prime Minister George Papandreou told a televised cabinet meeting on May 2 that his government sealed a deal with the EU and the IMF on a multi-billion euro rescue package, aiming to address the immense funding problems the country is presently facing and contain the spillover effects of the debt crisis to other EU countries featuring deteriorated public finances.

Mr. Papandreou characterized the rescue deal as ‘‘an unprecedented support package’’ that requires ‘‘an unprecedented effort’’ by the Greek people. Finance Minister George Papaconstantinou gave details of the agreement, before heading to a Eurogroup meeting later on Sunday, where the aid package won the bloc’s formal approval.

Greek government bonds reacted positively to the news, with yield spreads over the corresponding German securities tightening by around 50bps-130bps across the spectrum of maturities and shortdated paper outperforming. An ECB announcement earlier today that it would continue to accept all Greek government bonds as collateral in its liquidity-provision operations, even if their credit ratings continues to fall, provided additional support.

The Greek equity market was recording marginal losses at the time of writing (FTSE/ASE 20 down 0.18%), mostly on a buy-the-rumor-sell-the-fact type of reactions and, potentially, discounting a further deterioration in the domestic economy in the period ahead.

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