The Greek government’s hopes of exiting its bailout program early were dented this week as a fresh crisis emerged as benchmark 10-year bonds plunged to 5.6% from 8.71% in just one month and the Greek stock index lost 14.5% in just three days. European officials vowed to continue supporting Greece following the outbreak of the fresh crisis amid government officials’ insistence that Greece is not sliding back into financial upheaval.
“There should be no doubt that Europe will continue to assist Greece in whatever way is necessary so the government can keep financing itself,” said EU Commission Vice President Jyrki Katainen, adding that Greece had made immense progress since the 240 billion euro rescue programs started in 2010.
Prime Minister Antonis Samaras had a lengthy telephone conversation with European Commission President Jean-Claude Juncker on Thursday night to discuss the latest developments.
On his part, European Central Bank President Mario Draghi reduced the haircut applied on bonds submitted by banks as collateral ot borrow funds so as to access greater liquidity worth 12 billion euros.
Further backing for Greece came when European Stability Mechanism (ESM) chief Klaus Regling also indicated that the eurozone is prepared to help Greece. “It could mean a precautionary program,” said Mr. Regling, speaking to the German MNI news service. “Precautionary arrangements are one of the instruments that are available. I think in the euro area there is a lot of sympathy for the idea that Greece should have a precautionary arrangement to accompany its reform efforts. That could be a usefuall fall back in case they need more money.”
“The market atmosphere seen in the last couple of days does not reflect the state of the Greek economy,” said Finance Minister Gikas Hardouvelis. “Our path to growth is a reality.”
What is causing the fresh crisis?
Investors have been spooked by the propsect of new elections that could result in more power for the main opposition Coalition of the Left SYRIZA party that wants to renegotiate Greece’s huge debt.
A senior official for SYRIZA, Dimitris Papadimoulis, denied that the upheaval was caused by his party’s widening lead in the opinion polls. He attributes the drop to the government’s failure to keep its promise of an early bailout exit.
