Europe breathes easier as Greeks agree to tighten belt
Sydney Morning Herald
Friday March 5, 2010
FEARS of a sovereign debt meltdown in Europe are showing signs of receding, as credit markets welcome Greece's promise to slash spending.Investors have started buying the country's bonds this week, while credit default swaps (CDS), which gauge the cost of insuring against a possible default, have fallen globally after Greek leaders announced a fresh round of austerity measures.Currency markets, which had pushed the dollar to a record high of 66.81 euro cents on Wednesday amid default fears, dragged the dollar back below 66 euro cents yesterday.The Greek CDS spread has tightened to 279 basis points, from 366 last Wednesday, and two-year bond yields have fallen 100 basis points in the past four sessions, reflecting strong buying.The lift in sentiment has come after the Greek government promised to make another ‚4 billion in savings, a move welcomed by credit rating agencies and the International Monetary Fund.Analysts say the market is less fearful of a Greek default, though it remains wary about possible sovereign debt scares among highly indebted economies such as Britain and the US."It's certainly been helpful in calming some of the nerves that this would be the start of a collapse in the euro or contagion spreading to other economies ... but it does not make the job any easier for other economies," a senior economist at NAB Capital, David de Garis, said.The market expects Greece will need an implicit guarantee from a large European country before it issues new bonds in coming weeks, and its leaders are meeting with possible lending nations this weekend.The chief currency strategist at Westpac, Robert Rennie, said that even if Greece secured financing, investors would keep a close eye on it and other big debtor nations. "Greece is on a good behaviour bond. If it steps out of line, you're going to see a very swift reaction," he said. After the scale of stimulus packages to counter the global recession, Mr Rennie said further market shocks driven by sovereign debt were likely.Further improvement in sentiment could also help lift the sharemarket, which has gradually risen for the past five days. An equities strategist at Credit Suisse, Atul Lele, said receding fears of a sovereign default could give Australian shares a brief kick after a stronger than expected earnings season.
© 2010 Sydney Morning Herald