Oct 16, 2014 7:55 AM
EU pledges support for Greece as markets plunge
The Associated Press
ATHENS, Greece (AP) The European Union is promising Greece continued financial support, in the hopes of calming market turmoil triggered by concerns over the government's survival and the future of its bailout program.
Greek borrowing costs soared Thursday, with the interest rate on the benchmark 10-years bonds jumping to 8.71 percent a sign investors are more worried about default. And a third day of heavy selling on the Athens Stock Exchange saw shares lose another 2.2 percent in value, after dropping 12 percent in the previous two days.
Officials in Brussels and Athens insisted the Greek recovery program is in no danger.
Jyrki Katainen, vice-president of the European Union's executive Commission, said Greece had made "immense progress" since the 240 billion euro ($306 billion) rescue programs started in 2010.
"There should be no doubt that Europe will continue to assist Greece in whatever way is necessary" so the government can keep financing itself," he said.
Here's a look at what is spooking markets.
Greece's conservative-led government is promising the economy will emerge from a six-year recession this year and wants to cut short the country's bailout program by two years. To do so, Greece will have to be able to finance itself fully on bond markets.
Bailout lenders from fellow eurozone countries and the International Monetary Fund have appeared skeptical, however. The IMF recommends Athens should ease its way out of the program.
Greece may have no choice its borrowing rates in the bond markets are now very expensive.
The loans from euro countries end this year, while those from the IMF end in 2016.
Finance Minister Gikas Hardouvelis told parliament Thursday: "The market atmosphere seen in the last couple of days does not reflect the state of the Greek economy ... Our path to growth is now a reality. We can make it."
Markets, however, have reacted badly to the idea of an early exit, with the uncertainty heightened by the prospect of an early general election.
Conservative Prime Minister Antonis Samaras doesn't face elections until 2016 but he could be forced to go to the polls in February if parliament fails to elect a new Greek President. That vote needs a super majority of at least 180 votes in the 300-member parliament, while the government only has the support of 155 lawmakers.
Key opposition parliament members are shifting toward the left-wing Syriza party, which widened its lead in opinion polls this week. The party wants to overhaul Greece's bailout deal, arguing that the economy and Greek society have been weakened by punishing austerity measures, making recovery impossible without canceling a large position of bailout debts.
Canceling the debt, however, could have uncertain financial repercussions for Greece. Investors, for example, may be less willing to lend the country money for many years.
A senior Syriza official, Dimitris Papadimoulis, denied that market jitters were caused by his party's lead in polls, arguing they were triggered by the government's failure to deliver on its promise of an early bailout exit.
The final issue to worry investors is the prospect that Greece's main banks might not pass a review by the European Central Bank.
The ECB is going through the books of eurozone banks and if it finds any hidden losses of shortfalls, it will ask the banks to raise new money, even if that means getting rescue loans. Greek banks are struggling with a growing pile of non-performing loans, so investors see them at risk.
The ECB, which will announce the review results Oct. 26, did offer Athens some relief Thursday, however. It said it would make more cheap credit available to Greece's banks. The ECB said the decision was based on Greece's economic improvements over the past year, and "should not be viewed as an ad-hoc reaction to the most recent market stress."
McHugh contributed from Frankfurt, Germany.
Follow McHugh at http://twitter.com/dgmchugh
And Gatopoulos at http://twitter.com/dgatopoulos