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Φανή Πεταλίδου
Ιδρύτρια της Πρωινής
΄Έτος Ίδρυσης 1977
ΑρχικήEnglishGreece must resist return to capital markets

Greece must resist return to capital markets

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Some in Athens see a chance for country to test the mood 

By Ralph Atkins, Financial Times

The year has started with a party in the debt markets of crisis-hit countries on the eurozone’s periphery. What present should Greece, the eurozone’s bad boy, bring?

Offers of longer term bonds earlier this month from Ireland, which exited its bailout programme in December, and Portugal, which hopes to do the same in June, attracted strong international demand. Across the periphery, yields, which move inversely with prices, have fallen back to pre-crisis levels. Some in Athens – and London bankers – see a chance for Greece to test the mood. 

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An early return to international capital markets could confirm a turnround in eurozone fortunes; it is less than two years since Greece defaulted. But investors should beware any early gifts from Greece. Athens’ return to borrowing from international investors could instead prove a harbinger of fresh troubles – for other eurozone countries as well as Greece.

Greece must be sorely tempted. Even if the sums raised were token, successfully raising longer-term debt would strengthen the government’s hand in negotiations with eurozone partners. Athens exceeded its 2013 budget target, producing a primary surplus before interest payments.

Proof that it could again raise funds independently would allow Antonis Samaras, prime minister, to become still more assertive in resisting austerity measures. It would provide financial flexibility, providing scope to counter the worst social effects of austerity. Greek banks’ balance sheets, already substantially reworked under the bailout, would strengthen further.

As bankers also point out, Greece needs to reconstruct its post-default sovereign debt market, building its depth and liquidity at various bond maturities. The easiest way would be to issue fresh debt. Market conditions could deteriorate later this year if May’s European elections strengthen eurosceptic parties across the continent.

For Greece’s creditors, there would be attractions, too. Poul Thomsen, the International Monetary Fund’s mission chief, pointed out in a Greek newspaper interview late last year that international interest in Greek debt highlighted improvements in sentiment. “Once a virtuous cycle gets under way, confidence can return quite fast,” he observed, although he added that sticking firmly to the country’s reform programme was essential.

Exclusion period

A return to markets is an important turning point in bailouts designed to cover financing needs while access is denied. On recent form, Greece’s return is arguably due. Compared with the 1980s, the typical period of exclusion from markets during government debt restructurings has fallen sharply. Argentina, which has been excluded since its 2001 default, is an exception. Most defaulters regain access to new credit within one or two years, according to IMF research.

What is more, tapping international capital markets again would weaken Greece’s case for further financial support or help with its debt mountain, whether through extensions in maturities or lower interest rates. If German taxpayers avoided further burdens, the party would move to Berlin.

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Party pooper

But the atmosphere could quickly sour. Whatever bankers might advise, there are serious misgivings within the “Troika” overseeing Greece’s bailout programme (the European Commission and European Central Bank, as well as the IMF) about Greece returning to capital markets any time soon.

A big danger is of diverting Athens from implementing essential reforms. Notwithstanding progress on the budget, the IMF points out Greece has implemented only a third of agreed structural reforms. In terms of functioning as an advanced European economy, Greece is still far behind Ireland and Portugal.

Raising capital in debt markets would also be expensive. Greek ten-year yields are still near 8 per cent (Portugal’s are just above 5 per cent). Raising funds in any quantity would cast doubt over the long-term sustainability of Greece’s debts. For many eurozone policy makers, allowing Greece to borrow again would be like giving an alcoholic a bottle of ouzo. There is also the risk of a bond offer going wrong, knocking back confidence in other eurozone markets as well.

Instead, Athens needs to tread carefully. To edge its borrowing costs lower, Greece needs to regain the confidence of a broad range of conservative European investment funds. US hedge funds or specialist distressed situation investors may still be interested at 8 per cent yields, but they won’t be at 5 per cent. That process will take time. Yannis Stournaras, finance minister, has talked of “testing the market” with an issue of five-year bonds in the second half of the year. Even that could prove ambitious – if Greece is not going to be a party pooper.

 

 

 

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