Given how intimately dependent bank lending rates are on the rates at which the government can borrow, let me say a word about the government’s borrowing costs and how those have been affected by market sentiment in recent weeks. Right across Europe, for the past several weeks, the fiscal pressures in the Greek economy have been heightening investor concerns.
This resulted in Greek debt being traded in secondary markets at record yields. Despite the negotiation of a large financing package sufficient to deal with the Greek government’s borrowing needs for three years, and assurances that Greek government debt would remain eligible to back commercial bank access to liquidity at the ECB, market concerns remained high.