Tuesday, 8 April 2014

Greece sizes up its moment to return to markets

The head of the European Commission's Task Force to Greece said today that it would be a mistake for the country to leave off structural reforms to its economy once it is able to borrow affordably from markets again.

Horst Reichenbach spoke during the presentation of a study he commissioned, suggesting that Greece may already have reaped as much as a point of GDP (1.6bn euros) in benefits from reforms undertaken since 2010.

The report suggests that Greece mount greater efforts to reform its public procurements system (alone worth half a point of GDP), strengthen entrepreneurship and the business climate, remove bureaucratic burdens on doing business and improve productivity.

Speculation has mounted of a Greek return to financial markets as early as this week. Greece has given away no hints about exactly when this will happen. Finance minister Yannis Stournaras has said only that it will be "in the first half of the year". Greece last borrowed in March 2010, before being put on financial life support from its Eurozone partners and the International Monetary Fund.

Greece announced today that it had sold a 26-week bond at the lowest rate to date - 3.01 percent, against 3.6 percent month ago and 4.1 percent in February.

Greece has begun to reclaim enough credibility in financial markets to re-earn the six percent interest rate it sold its last 10-year bond at in March 2010. It stood at 6.16 percent on Tuesday morning. That rate had climbed to over 30 percent at the height of the crisis in the autumn of 2011.

Most Greeks don't believe the government is on the right track. A GPO poll broadcast by Mega channel last night found that two thirds of Greeks believe austerity is not yielding fruit or leading Greece out of the crisis. Fifty-one percent believe ordinary taxpayers will be worse off inn the next two years. Only 21 percent thought people would be better off.

Winning political kudos

An informal Eurozone finance ministers' meeting last week gave Greece the green light to receive 8.3bn euros' worth of facilitation loan instalments due since last June. The nod came as unofficial recognition of Greece's claim to have clocked up a 2.9bn euro primary surplus last year, to be officially corroborated on April 23.

Since then, Greece has been the recipient of laudatory remarks from Eurozone officials, signalling that it has begun - in political terms, at least - to re-enter the atmosphere of the respectable euro world. 

"It seems that public finances have come along better than forecast in the [adjustment] programme," German finance minister Wolfgang Scheauble told Greek national daily Kathimerini on Sunday. "I believe that Greece will achieve its targets this year and there will be growth again." 

Greece has promised to turn a 3.9 percent recession last year into 0.6 percent growth in 2014. But European officials are still watching its ability to continue to collect tax revenues from a financially drained economy. 

"Greece is benefiting from moneyflows towards Europe but also from its own correct policies, particularly in public finances, though it must continue reforms" said Claus Regling, head of the European Stability Mechanism, which has disbursed most of Greece's second, 130bn euro facilitation loan. "I want to recognise the achievements of the Greeks. Much has been done... we may now be facing a scenario in which no further outside assistance will be needed," he said. Regling made his remarks in an interview to Greek Sunday newspaper To Vima. 

If Greece does indeed manage to maintain tax revenues, pay state salaries and suppliers and fund pensions, the big question will be whether it can service its debt, now at 174 percent of GDP. This partly depends on its rate of growth, and Eurozone officials have taken a wait-and-see approach to its performance before deciding on what kind of help the country needs.

See the Financial Times' assessment of Greece's motives for selling a bond sooner rather than later. 

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