As Bailouts End Looms, Market Jitters Blocking Greek Return

Athens Stock Market. (Photo by Eurokinissi/Eleni Kouri)

With three international bailouts of 326 billion euros ($373.25 billion) ending on Aug. 20 after more than eight years, markets are showing jitters over the prospects Greece can recover, even with a built-in cash buffer.

The yield on Greek bonds jumped 4 percent, with investors also anxious about what Italy’s populist government’s 2019 budget will look like with worries it will try to resist the European Union’s demands for fiscal integrity.

Greece’s 5-year debt yield hit 3.2 percent, the highest in two months, while it was 3.75 percent on a 7-year state bonds. Two earlier test bond sales of 3 billion euros ($3.44 billion) sold in the lat year but at interest rates more than three times higher than the rescue packages.

Despite securing a debt relief deal giving the country more time to pay, there are still concerns that it’s unsustainable and with Prime Minister and Radical Left SYRIZA leader Alexis Tsipras agreeing to automatic spending cuts if fiscal targets aren’t met.

The roiling market scene now makes it unlikely Greece will attempt going to the markets, fearful that spooked investors would want too great a return and making the cost prohibitive.

In the current climate, Greek authorities should abandon any plans for a new bond issue in the fall, fund managers told Kathimerini.

“We should not make the same mistake as that earlier this year,” one fund manager said, referring to the issue in February of the 7-year state bond whose yields spiked unexpectedly, higher than anticipated.

In a report on the Greek economy, Parliament’s previously independent budget office, now controlled by a Tsipras loyalist, cautioned nonetheless that Greek bond issues should be “well-designed and careful,” because there’s no urgent need for as long as 22 months with the cash reserve from the bailouts end providing a buffer.