Investor unease over Greece continues

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Investor confidence in Greece has continued to be hit amid speculation over the future of the Greek economy. The cost of borrowing has risen sharply with interest rate for two-year Greek bonds hitting a new high of almost 19%. Stock markets in Europe and New York are currently broadly stable, after the sharp falls triggered on Tuesday by the downgrading of Greek debt by a major international credit rating agency to a level known informally as “junk”. Gerry Hadden has an update from Spain.

• BBC coverage
• Greece asks for aid package
• Global Economy podcast

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MARCO WERMAN:  I’m Marco Werman and this is The World.  Things were going smoothly on world stock markets today.  The markets were getting a boost from news of a proposed aid package for Greece’s debt ridden economy.  Then, along came other news that Standard and Poor’s was cutting Spain’s credit rating.  That sent European stocks sliding, though on Wall Street the Dow Jones Industrial Average closed up 53 points at 11,045.  Still, investors are likely to have more sleepless nights until the debt crisis in Greece is resolved, and that could take a while as The World’s Gerry Hadden explains.

GERRY HADDEN:  The interest Greece now has to pay on two year borrowing rose to more than 20% today.  That’s compared to about 14% just yesterday.  Economist Nicolas Scurias at Pegasus Securities says that high rate reflects concern that Greece might fail to repay its debt.

NICOLAS SCURIAS:  It’s very, very tough. So you are close to the default situation.  You need tough measures and a quick activation of the rescue package.

HADDEN: That rescue package, 60 billion dollars from the International Monetary Fund and the European Union in the first year alone is close, but it’s not there yet.  Germany is the biggest single contributor and it’s demanding that Greece cut public spending further to receive the loan.  But Greece has pushed through three austerity packages since the crisis began last year and Greek citizens appear unwilling to accept more cuts.  Greeks marched again in Athens today to demand protection for the country’s poor.  This unemployed woman says she was frustrated by her government’s inability to turn the economy around.

INTERPRETER:  It worries me because abroad they see the mistakes that we’re making, the mistakes our leadership is making.  And because of this, there are rumors that have caused our stock market to drop along with our ability to borrow.

HADDEN: Pessimism over Greece’s chances of pulling out of its economic spiral has caused the Euro’s value to drop.  Stock market indexes around the world have also taken hits.  That’s because investors just about everywhere own shares of Greek debt.  What’s more, fears are rising that Greece’s instability will spread to other European countries.  Yesterday Standard and Poor’s also downgraded Portugal because of its rising debt.  The Portuguese government says that rating was undeserved.  But independent economist Pedro Braz Teixeira told Bloomberg that Portugal had it coming.

PEDRO BRAZ TEIXEIRA:  I’m concerned that the government seems to be in half denial in terms of the public accounts and is in total denial in terms of external accounts.  And this denial of the government is creating political costs for doing reforms because people are not aware of the need to make reforms.

HADDEN: Just this afternoon Standard and Poor’s downgraded Spain’s long term debt and said the outlook was negative.  S&P said Spain’s economy may be too sluggish to reduce the country’s deficit.  This comes on the heels of calls from the IMF and the European Central Bank for Spain to enact reforms to reverse mounting debt.  Earlier today, Spanish Prime Minister Jose Luis Rodriguez Zapatero argued in Parliament that money is starting to flow back into state coffers.  Tourism, car sales and electricity consumption are all up.  The Spanish leader said without doubt there are indications that the economy is recovering, that we’re leaving the recession behind and that is possible that in the quarter just ending, we actually experienced positive growth.  But Spain’s unemployment is now over 20%.  That means one out of five workers not earning, not spending, not paying taxes.  Both Spain and Portugal hope the EU can get its Greece rescue package together soon.  Restoring calm over Greece will take the pressure off them as well.  For The World, I’m Gerry Hadden in Barcelona.

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