Greece Eyes Return to Markets, But is it Mistake?

FILE - People walk near an electronic stock board showing Japan's Nikkei 225 index at a securities firm Thursday, June 15, 2017, in Tokyo. (AP Photo/Eugene Hoshiko)

ATHENS – Buoyed by a bailout deal that puts punishing news measures on pensioners and low-income families, Greece’s ruling Radical Left SYRIZA-led coalition may test a market return soon, a move at least some analysts said could be a rushed mistake.

Speculation abounded in the Greek media that Prime Minister Alexis Tsipras, eager to reverse a non-stop slide in popularity after he again reneged on anti-austerity promises in return for the release of 8.5 billion euros ($9.75 billion) from a staggered, delayed third rescue package – this one for 86 billion euros ($98.62 billion) – would authorize the bond issuance.

That would be only the second since previous governments beginning in 2010 sought what turned into three bailouts of 326 billion euros ($373.83 billion) that came with harsh measures being imposed on workers, pensioners and the poor.

The conservative Kathimerini newspaper reported that Athens appears willing to “take advantage of the current positive conjecture in the markets,” with investors eager to take advantage of interest rates that the bond would bring them, ignoring what happened in 2012 when holders of Greek bonds were hit with 74 percent losses in a desperate, failed bid by the then-government to slow the debt growth.

“It is being discussed…Preparations are made for both scenarios and whatever happens we will be ready,” a person with knowledge of the government’s plans told the news agency Agence France Presse.
Greece has no immediate need to draw money from the bond markets. The European Stability Mechanism (ESM) will keep feeding the debt-ridden country with low rate loans until the end of the bailout program in July 2018, AFP noted.

But Tsipras needs a public relations success that could come if the return brings investors and lets him push his constant rhetoric that a recovery is coming even though it more likely will take decades.

“Going back to the markets early is a big mistake. Greece will have to pay a risk premium of several hundreds of basis points for medium term funding. All the private funding that Greece might find now will mature well before the European loans,” Daniel Gros, Director of the Centre for European Policy Studies, told CNBC.

“Coming back to the market is important, but I would say it is an important error. There is always a risk that things do not work out as planned and that a fourth bail-out will be needed,” Gros told CNBC.

According to European Commission figures, Greece is showing a slow turnaround even though a higher-than-expected primary surplus of 1.93 billion euros ($2.21 billion) for the first half of 2017 was achieved by not paying bills and doesn’t include the cost of running cities and towns, state enterprises, social security and some military programs.

ESM Managing Director Klaus Regling said that it was “a good moment” for Greece to consider how to return to capital markets, pointing out that Ireland, Portugal and Cyprus had done so “before the end of their (bailout) programs”.

“Greece’s return to the markets is the step that everyone is waiting for,” European Commissioner for Economic and Monetary Affairs Pierre Moscovici said.

Bank of Greece Governor Yannis Stournaras said it was “rather early” for a return to the bond markets.

In an interview with the Wall Street Journal he said “it would be even better, for instance, if Greece proceeds with two or three emblematic privatisations in the period to come. That would be more helpful to tap markets later.”