The country’s GDP shrank 6.2pc year-on-year in the second quarter of 2012, based on first estimates, underlining the chronic economic crisis which is hampering Greece’s ability to pay its debts.
In its biggest auction for month, Athens plans to auction €3.1bn in three-month bills to meet the repayment deadline of a €3.7bn loan from the European Central Bank.
The auction is being watched as a indication of the level of support for Greece ahead of a make-or-break few months for the eurozone. It comes amid tough warnings from Germany that Athens must honour its bond agreements of face ejection from the eurozone.
A European Commission spokesman said: “We’re not worried. According to our information the T-bill issuance is fully under control.”
Raoul Ruparel head of research at Open Europe said: “The money being raised will largely go straight to Greek banks so we expect the bondmarkets to be happy with that. But the idea of repaying long-term debt with short-term debt is not ideal or sustainable for Greece as it just increases the country’s financing costs. Greece needs a proper solution.”
Fresh data showed that the ECB axed its funding to Greek banks by €49.67bn to just €23.99bn in July from June leaving the Greek central bank to provide emergency liquidity instead. Greek banks borrowed a total of €106.31bn from the Bank of Greece in July - up from €61.94bn in June.
Angela Merkel, the German Chancellor, returned from her summer holiday with Greece top of her agenda.
Michael Fuchs, deputy parliamentary leader of Ms Merkel’s Christian Democrats (CDU), said Germany would not hestitate to veto any extra funding for Greece if Athens failed to stick to its austerity agreements. “We long ago reached the point where the Greeks must show they are capable of delivering a shift,” he told reporters. “A policy of the last, last, last chance won’t work anymore and must come to an end.” He added: “Even if the glass is half-full, that is not enough for a new aid package. Germany cannot and will not agree to that.” German economy minister Philip Roesler said the Greeks had “hardly responded” to effort to help its economy.
Meanwhile, Italy’s public debt tipped €2trillion in June - its highest level on record. Yet there were more signs in Brussels that efforts to help the bigger eurozone economies are losing support.
Luc Coene, an ECB governing council member, told reporters that it “makes no sense” for the ECB to start financing Spain and Italy: “It would only lead to the ECB taking on the whole public debt of Spain and Italy onto its balance sheet.” He added: “We haven’t forgotten what happened in August of last year [when] we bought Italian bonds and right after that the Italian government reneged on its pledges…The conclusion is clear: When you take away the market pressure, you take away the pressure on politicians to act.”
The Telegraph
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