"Given the circumstances, and the interest rate we have secured, it is an important step. With this move, we have covered a lot of the ground on the path toward normalcy, but there is still some way to go," party spokesman
"The risks are still there," he added. "Fiscal consolidation is only part of the recipe for success. We also need the reforms that will render the
The government is swapping €750m in domestic borrowing for external debt, the chief advantage being the lower interest rate, he said.
Currently the government is paying a nominal interest rate of 5.15 per cent on domestic debt, compared to the 4.75 per cent it's paying on the five-year bond, maturing in
The banks would also benefit by replacing government paper (bonds) with cash, thereby increasing liquidity in the system.
Moreover, lenders would be able to release provisions for capital that they have so far been obliged to keep on their books for holding bonds that are classed as toxic or junk, Prodromou said.
"This is no time for celebration, but neither for self-pity," he added, alluding to opposition parties' reaction to the bond issue.
The opposition's criticism was fairly subdued, as they were obliged to acknowledge that the vaunted return to the markets was a positive development.
AKEL said however that it remains to be seen where the €750m will be channelled– would it be used to refinance existing debt or to pay off old debts, it asked.
"It [the bond issue] may be a corrective step, but it is not expected to affect the rising unemployment, nor the pauperization of the people, and obviously it does not change today's tragic economic situation whatsoever."
AKEL noted moreover that the bond issue attracted a great deal of interest not because of an improvement in the fundamentals of the
Centrist party DIKO said the ultimate goal should be converting all of the country's debt to foreign borrowing, and at interest rates "less onerous than today's."
Given the "vote of confidence" in
Domestic debt is included in the total public debt, so the €750m borrowed from the markets does not increase the overall total national burden.
The island was shut out of international capital markets in
"The coupon (interest) is still a bit on the high side though, considering the ECB's recent drastic cuts in interest rates," he said.
And one should put things into perspective, such as that the Cypriot bond is comparatively the most expensive among eurozone countries.
Cheap money, a policy pursued by the ECB, means bond yields are at record lows, making even moderate returns attractive to hungry investors, said Spanos.
Cheap credit also creates market distortions, which would explain why a country with expected negative economic growth (minus 4 per cent forecast for this year) and an unemployment rate of around 20 per cent is still able to borrow abroad at interest rates that would otherwise suggest the investment is relatively risk-free.
"There is moreover no guarantee that Cypriot banks, once they get the cash from the government's bond issue, will move the money down the road," added Spanos.
The economist reiterated his view that, instead of borrowing from the markets,
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