Greece: Longing for a return to the comforts of the capital market

As part of the third bailout programme, Greece received the next tranche of EUR 7.7 billion last Monday, eliminating the liquidity bottlenecks that threatened to take hold at the end of July. This provides the Greek government with some financial breathing room for the time being, at least until 2019, when larger repayments once again become due. Because Greece has satisfied the reform requirements of its creditors for now, the topic of debt service relief will once again regain relevance in the coming months, although the EMU lenders are unlikely to find the motivation to provide financial relief for Greece until after the German parliamentary elections at the end of September. Should this succeed, the Greek government may come a step closer to their goal of operating independently on the primary market once again.

There have been months of speculation that the periphery nation may be able to return to the capital market, and ESM Managing Director Regling most recently supported this endeavour. After all, other countries under the Euro bailout scheme, among them Ireland and Portugal, returned to the markets well before the scheme came to an end for them. The Greek government in particular has been pursuing a goal of resuming independent issues for some time and has therefore sought to send a political signal that they are less dependent on their creditors. Internally, the beleaguered government is in desperate need of new successes to boast, which is why the Greek government is believed to have already made contact with foreign investors.

At 5.4%, the yields for ten-year GGBs are currently at their lowest level since 2009, putting them even slightly below that of 2014, when Greece was last trading on the primary market. Back then, the country issued a five-year bond with a coupon rate of 4.95%. At present, the yield for a government bond of this maturity period is 3.8%. An announcement of debt relief and hope that Greece may be admitted to the PSPP may cause the downward trend in yields to continue. Even if investor interest in Greece has most recently risen again, the attitude towards the current Greek government is likely to remain tinged with scepticism – given that Tsipras’ team in recent years has demonstrated too little in the way of serious, long-term desire to enact reform and has proven too unpredictable. Because Greece by comparison does not even pay one percent in interest for ESM loans right now, extensive refinancing via the capital market is fiscally hardly possible anyway.

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