Sunday, April 11, 2010
The EU (or more correctly EU member states) has now agreed to borrow to Greece up to €30 billion at a 5% interest rate, if Greece wants to. The IMF will be ready to contribute another €15 billion. Since this means that Greece will get a lower borrowing cost, while Germany, Holland and other lenders will earn a interest premium (as their borrowing cost is a lot lower than 5%), this agreement will be mutually beneficial. It remains to be seen how the increasingly erratic and irrational bond markets will respond, but it will most likely lower bond yields.