Greece is praying for Merkel!

The countdown to the time that Greece will once again look at hedge funds and rating agencies face to face, has began. Under the threats of a new downgrading, our country's bond spreads are prohibitive, but a lot might be decided even today, as Germany and Portugal are «premiering» in the debt markets for this year.

Germany is the barometre of spreads for Europe, while Portugal is resembling Greece more and more. Our country at this stage has every interest  in things developing favorably for both partners, although the economic team, through certain satirical comments, have exprssed the idea that perhaps it is time for the «iron lady» Angela Merkel to get a taste of her own medicine in terms of of speculative attacks.

It is significant that while the rate for the 10-year German bonds last August was only 2,087%, throughout 2010 it stood at 2,78%; Germany is already borrowing at more than 3% and the forecast from Bloomberg is that it will go over 3,28% this year.

Powerful lessons on what our country should expect from the markets are anticipated from the first-footing of France and Spain on Thursday.
 
The crucial meetings

However, the economy team is already in battle positions against the rating agencies that threaten to further downgrade the Greek economy, and are sending a message to them not to try to create a fait accompli, at least not before January 18th and the Eurogroup and Ecofin meetings.

But new data has been created by the revelations of Giorgos Papakonstantinou that the plan for the purchase of Greek bonds by China is under way.

The ministry of Finance is battling against time with January 18th in mind, to avert dismal developments and downgrades before the crucial Eurogroup and Ecofin meetings, where the minister is hoping for a vote of confidence by our partners for the 4th installment, and also for the extension of the repayment period.

As he stated in Reuters: «We want the extension to cover the whole package and not just the part that has not yet been disbursed. This is something that the Commission is looking into positively, but we must await the final decision by the Eurogroup».
 
Downgrades and “downgrades”

However, the ministry of Finance is in constant contact with the usual suspects (Moody’s, Fitsch, S&P) and wants to persuade them that they cannot ignore the new data generated by the extension in their decisions, and that they should treat differently a country which is called upon to repay 110bil in 11yrs instead of 5 (if the extension is granted).  

But even if they proceed with the downgrading, it will not be as great as it would be without the extension. The government is citing the data on revenue, which shows that for 2010 they almost managed to receive the 56bil euros from the memorandum.

On the 11th and 18th of this month, the economy team gets its baptism of fire for this year, drawing 4bil on Treasury bills of three- and six-month duration. Overall in 2011 the government wants to borrow 69,5bil euros, 46,5 from the Troika and 23 directly from the bond markets, but at lower interest rates than what they offer today.

However, there are still three weapons in the arsenal of George Papakonstantinou and the Public Debt Management Agency: the bonds with funds from the Diaspora Greeks who will buy state bonds from home, the plan for the Eurobond and the massive buys of Greek bonds by China.