Greek Bonds Tumble as Government Says Tax Revenue Falling Short
Greek bonds slid for a third day as Finance Minister George Papaconstantinou said a tax-revenue shortfall is hampering government efforts to reduce the nation’s budget deficit.
The declines pushed the yield on the 10-year bond to the highest in more than three weeks. Papaconstantinou, speaking at a conference in Limassol, Cyprus, said Greece has “serious tax compliance issues,” while the country’s budget shortfall last year as a percentage of gross domestic product after a revision by European Union authorities will be above 15 percent, more than Prime Minister George Papandreou indicated on Oct. 7.
“The tax problems highlight event risk for Greek bonds,” said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Plc in London. “The country functions with zero appetite to pay tax, and the authorities are looking to change this. Papaconstantinou is drawing a line in the sand, and wants better compliance from now on.”
The yield on the 10-year Greek bond climbed 74 basis points to 10.50 percent as of 2:31 p.m. in London. That’s the most since Sept. 30, based on closing levels. The 6.25 percent security maturing in June 2020 fell 3.73, or 37.3 euros per 1,000-euro ($1,382) face amount, to 74.82.
The extra yield investors demand to hold Greek 10-year debt instead of bunds widened by 55 basis points to 771 basis points, the most since Oct. 5. Credit-default swaps on Greek bonds rose 60 basis points to 738, the highest cost to insure the debt since Oct. 7, CMA Datavision said.
Papaconstantinou said there are “about 1.5 million unaudited cases of businesses” in Greece, while some 1.2 million “Greeks, physical persons and businesses,” have tax arrears. “We are pretending collectively as a country to have a tax system,” Papaconstantinou said. “We don’t.”
Prime Minister Papandreou urged Greeks to back his ruling party in next month’s local elections, his first test at the ballot box since crafting a 110 billion-euro bailout.
“If we stop now and don’t continue with major changes, the sacrifices we have made so far will be lost,” Papandreou said in comments televised Oct. 25 on state-run NET TV and six other channels. “Instead of making the crisis an opportunity, we will probably find ourselves in a worse situation.”
If Papandreou doesn’t get the result he wants in the elections, there’s a possibility he may call a general election, according to RBS’s Sian.
“The popularity of the government is high enough, but an election still represents an event risk for Greek bonds,” Sian said.
Greek bonds fell yesterday after Pacific Investment Management Co. said the nation may default within three years. Budget cutting won’t be enough to reduce the nation’s debt burden, Pimco Chief Executive Officer Mohamed A. El-Erian said at a conference sponsored by the Economist magazine.
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