Yields on the Greek governments brand new bonds are
already trading at distressed debt levels suggesting
that despite Februarys bailout package investors still
see a strong chance that Greece will not be able to sustain
even its much-reduced debt burden.
As the first week of trading closed, yields on the benchmark
10-years were at 18.24 percent down from
Tuesdays closing high, but still the highest in the euro
The new bonds have replaced old Greek paper, under a
massive 206 billion ($273.5 billion)
exchange program that swapped old bonds for new ones carrying
The high yields the most elevated by far in the euro
zone reflect skepticism about whether the latest rescue
deal, based on an orderly default of Greek debt, is enough to
prevent a second default in the future. Last month private
sector creditors reluctantly agreed to an effective default of
75 percent of the value of their debt, in a deal masterminded
by euro zone finance ministers.
Assessing Greeces ability to meet its fiscal
challenge, Mike Turner, head of global strategy and asset
allocation at Aberdeen Asset Management in Edinburgh, said,
The aim of reducing the countrys debt-to-GDP ratio
from 160 percent to 120 percent by 2020 the
timetable envisioned by euro zone ministers when they put
together the second bailout package still looks an
impossible task without further write-offs.
The heart of Greeces problem is that it needs first to
halt a rapid decline in its gross domestic product which
could amount to 8 percent this year. Having achieved this
Herculean task, it must then start growing its economy
An expanding economy would boost tax receipts, allowing it
to pay down debt.
But achieving this is an extremely tall order for several
reasons, say analysts.
The cuts in spending made to close Greeces fiscal
deficit have already meant redundancies for thousands of
government workers, which has cut household consumption. As a
result, Greece is in its fifth year of economic contraction
one of the longest recessions suffered by a country in
modern global history. This has hit tax revenues forcing
even more cuts in spending that create a vicious cycle.
A second problem is that even in normal times, Greece lacks
the ability to generate fast economic growth for a sustained