Greece: Survival on probation

Prime Minister Tsipras narrowly survived yesterday’s vote of no confidence in the Greek parliament – 151 out of a total of 300 lawmakers voted for the government. Along with the Syriza parliamentary group which he heads, six other parliamentarians cast their votes in the premier’s favour; by contrast, ANEL, his former coalition partner, was divided down the middle by defections. It is true that Tsipras now has better odds of remaining in office until the regular parliamentary elections scheduled for the autumn. But now that ANEL has pulled out of the coalition he is heading up a minority government. Tsipras could already face the next severe test when the Greek parliament votes on whether or not to recognise the name “North Macedonia.“ Not all opposition lawmakers who backed Tsipras yesterday are behind him on this issue as well. On the other hand, recognising the Republic of North Macedonia would open up an opportunity to end the conflict with Greece’s northern neighbour which has been rumbling on for so long, and would also keep the issue out of the electoral campaign.

The market has reacted calmly to the outcome of yesterday’s vote, not least because it did not come as a surprise that Tsipras managed to squeak home. The ten-year risk premium for Greek government bonds against Bunds has been trading in the vicinity of 400 basis points for days. What is more, Greek risk-premium volatility has been even lower than that on maturity-congruent Italian government bonds for some weeks now.

However, the calm which has descended on the bond market will probably only prove to be short-lived. According to reports, the Hellenic Republic is planning to launch new bonds. In view of the fact that its financial buffers have been boosted by ESM financial assistance, Greece does not urgently need to sell fresh debt at the moment. But a successful bond launch would be likely to be construed above all as a good advertisement for the issuer. All the same, the high demand for syndicated issues from other EMU countries (e.g. Belgium, Italy or Portugal) in evidence this year ought, on the whole, to make Greece confident about the market environment for new issues.

 

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