LONDON / ATHENS (Reuters) - The markets reacted positively on Monday the agreement reached in the euro area to provide financial assistance to Greece, as reflected in lower borrowing costs in the country and a rise in the shares to reduce the risk of a default.
But there were still doubts about whether Greece will have to use the rescue fund on how to activate the plan and how the weaker member of the euro area would deal with its mountain of debt of 300,000 million euros in the long term.
The euro rose, the yield on the benchmark short-term Greeks fell into more than one point to about 5.9 percent and the cost of insuring the debt of the country against a moratorium was substantially reduced on Friday, in a climate by surprise by the bailout of the EU, which was larger than expected.
"It's almost a market that still do not think they have reached a solution to this problem," said Sean Maloney, a strategist at Nomura.
But a German government spokesman front opened a potential conflict after saying that EU leaders should agree at a special summit activation of the support mechanism, in which Germany would be the main contributor with a contribution of 8,400 million euros (11,400 million).
That contradicted statements by the leader of the finance ministers from the eurozone and the European Commission had said that a decision of the ministers would be sufficient and that this could be via teleconference, as did Sunday with the plan rescue.
The euro fell to $ 1.3610 from $ 1.3590 following statements by the German spokesman.
A European Commission spokesman contradicted his German counterpart to ensure that it will not be necessary to convene a summit of European Union leaders agreed to activate the support for Greece.
"No, no need to organize a summit in Brussels. As we saw yesterday, the Eurogroup (the finance ministers) can activate itself in a very quick and effective," said Commission spokesman.
The yield on the country collapsed 12 months some 268 basis points to 5.28 percent, suggesting that the threat of default in the short term had decreased.
"The support package for Greece (...) should ensure that you can meet their financing needs over the next year, but does not guarantee the solvency of Greece in the long term," said Ben May at Capital Economics in London.
Finance ministers of the euro zone agreed on Sunday a package of 30,000 million euros in loans to three years in Greece, at an interest rate close to 5 percent if the country asks for help. The International Monetary Fund would provide another 15,000 million in the first year.
The plan, which in the first three years would amount to EUR 45,000 million and then traded more funding, could be the largest multilateral financial bailout in history, leaving behind former IMF bailouts of Mexico and Argentina.
NO ILLUSIONS
However, the Greek authorities and the national press had no illusions that a short-term boost in the markets will be sufficient to prevent the country from having to seek a bailout in the long term.
"It's a sigh of relief, but does not solve our problems," said center daily Eleftherotypia, which supports Prime Minister George Papandreou, in an editorial.
"The country is heavily indebted and have to lower their debt to survive in the long term," he said.
Papandreou is implementing harsh austerity measures to fulfill the promise of reducing the country's fiscal deficit to below 9 percent of GDP this year.
Managing Director International Monetary Fund (IMF), Dominique Strauss-Kahn, told an Austrian magazine that deflation is the only way that Greece can effectively stop their debt problems.
"The only effective remedy there is deflation," said Strauss-Kahn told Profil magazine in an interview. "And this is exactly what the European Commission has recommended correctly," he said.
The index of bank stocks in the Athens Stock Exchange rose 8.2 percent, exceeding the overall progress of 4.61.
Greece need to borrow some 11,000 million euros by the end of May, in order to refinance debt and ready to conquer interest payments.
A senior Finance Ministry official said Greece would proceed with a presentation in the United States later this month to promote a bond issue dollars.
A successful return to the markets of Greece to Athens would delay any request for help at least until after a key regional election in Germany scheduled for May 9.
The elections in Germany are seen as one reason behind the tough stance of Berlin against Greece, as the plan to help Athens is very unpopular among Germans.
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But there were still doubts about whether Greece will have to use the rescue fund on how to activate the plan and how the weaker member of the euro area would deal with its mountain of debt of 300,000 million euros in the long term.
The euro rose, the yield on the benchmark short-term Greeks fell into more than one point to about 5.9 percent and the cost of insuring the debt of the country against a moratorium was substantially reduced on Friday, in a climate by surprise by the bailout of the EU, which was larger than expected.
"It's almost a market that still do not think they have reached a solution to this problem," said Sean Maloney, a strategist at Nomura.
But a German government spokesman front opened a potential conflict after saying that EU leaders should agree at a special summit activation of the support mechanism, in which Germany would be the main contributor with a contribution of 8,400 million euros (11,400 million).
That contradicted statements by the leader of the finance ministers from the eurozone and the European Commission had said that a decision of the ministers would be sufficient and that this could be via teleconference, as did Sunday with the plan rescue.
The euro fell to $ 1.3610 from $ 1.3590 following statements by the German spokesman.
A European Commission spokesman contradicted his German counterpart to ensure that it will not be necessary to convene a summit of European Union leaders agreed to activate the support for Greece.
"No, no need to organize a summit in Brussels. As we saw yesterday, the Eurogroup (the finance ministers) can activate itself in a very quick and effective," said Commission spokesman.
The yield on the country collapsed 12 months some 268 basis points to 5.28 percent, suggesting that the threat of default in the short term had decreased.
"The support package for Greece (...) should ensure that you can meet their financing needs over the next year, but does not guarantee the solvency of Greece in the long term," said Ben May at Capital Economics in London.
Finance ministers of the euro zone agreed on Sunday a package of 30,000 million euros in loans to three years in Greece, at an interest rate close to 5 percent if the country asks for help. The International Monetary Fund would provide another 15,000 million in the first year.
The plan, which in the first three years would amount to EUR 45,000 million and then traded more funding, could be the largest multilateral financial bailout in history, leaving behind former IMF bailouts of Mexico and Argentina.
NO ILLUSIONS
However, the Greek authorities and the national press had no illusions that a short-term boost in the markets will be sufficient to prevent the country from having to seek a bailout in the long term.
"It's a sigh of relief, but does not solve our problems," said center daily Eleftherotypia, which supports Prime Minister George Papandreou, in an editorial.
"The country is heavily indebted and have to lower their debt to survive in the long term," he said.
Papandreou is implementing harsh austerity measures to fulfill the promise of reducing the country's fiscal deficit to below 9 percent of GDP this year.
Managing Director International Monetary Fund (IMF), Dominique Strauss-Kahn, told an Austrian magazine that deflation is the only way that Greece can effectively stop their debt problems.
"The only effective remedy there is deflation," said Strauss-Kahn told Profil magazine in an interview. "And this is exactly what the European Commission has recommended correctly," he said.
The index of bank stocks in the Athens Stock Exchange rose 8.2 percent, exceeding the overall progress of 4.61.
Greece need to borrow some 11,000 million euros by the end of May, in order to refinance debt and ready to conquer interest payments.
A senior Finance Ministry official said Greece would proceed with a presentation in the United States later this month to promote a bond issue dollars.
A successful return to the markets of Greece to Athens would delay any request for help at least until after a key regional election in Germany scheduled for May 9.
The elections in Germany are seen as one reason behind the tough stance of Berlin against Greece, as the plan to help Athens is very unpopular among Germans.
