Implicit German guarantee helps Greece raise €1.5bn from investors

The Greek rescue package passed its first test easily yesterday when the latest auction of that country's government debt was heavily oversubscribed.

The euro continued to strengthen on international markets, buoyed by the encouraging news from Athens. Investors seemed keen to take up the relatively generous yield on the paper, now accompanied by an apparent implicit guarantee from the German government.

Greece raised around €1.56bn (£1.38bn) through the sale of bonds with six-month and one-year maturities, in an offering that was 6.5 times oversubscribed.

The yield on the bonds, at 4.85 per cent, is lower than it would have been had the rescue package not been agreed, but was still high, even by recent standards.

A similar issue in January carried a return of 2.2 per cent. This suggests that, while short-term worries about Greece's situation have been dispelled, many on the markets still judge the crisis far from over. The possibility of a debt restructuring – in effect default – hangs over the Greek government's efforts to raise money and stabilise the economy.

The seriousness of European efforts to bring the Greek crisis – which has devalued the euro and stymied eurozone confidence and growth – to an end were underlined yesterday in remarks by the French Finance Minister, Christine Lagarde. She said the aid package from fellow eurozone members – comprising a series of bilateral deals – leaves "no room" for disagreements that would substantially alter the loan plan if it is activated.

"It leaves no room for queries, questions or moodiness. I'm very confident that all the technical and practical aspects of the so-called Greek package have been thoroughly discussed and agreed," said Mrs Lagarde.

"It's a two-way street. It means those who have competitiveness gaps must as a matter of priority try to narrow those gaps. Those who have had massive improvements in competitiveness should also do a little something."

Mrs Lagarde and her fellow finance ministers talked the deal though in a phone conference on Sunday. The formal summit of European finance ministers starts in Brussels this Friday, at which the deal will again be endorsed.

About €30bn will be made available by eurozone nations, principally Germany and France, in three-year loans with a below-market interest rate of 5 per cent.

The IMF is also said to be "ready"to intervene with another €15bn.

Altogether, the loans account for about a fifth of Greek GDP. It is hoped that the efforts will bring to an end the most serious crisis to hit the euro since its creation in 1999, and one of the most financially traumatic in the history of the European Union.

Investors are still showing some concern about "contagion" possibly spreading to Portugal and Spain.