Some flickering rays of hope beneath the surface of the embarrassing disaster that was the Eurogroup of 11 February: the Greek government may be starting to come out of its daydream and to take stock of reality, which imposes negotiations to remain within the realm of the EFSF programme, already ratified and nearing expiration……..
Intesa Sanpaolo – Research Department – For professional investors and advisers only
However, time is tight, and politically even more unpleasant choices lie ahead for a government whose intention it was to free Greece from the troika’s control: greater freedom of movement in budgetary terms will imply greater dependence on new loans.
To what extent should the failure of the Eurogroup meeting on Greece, held on Wednesday 11 February, be of concern? The appearance is that of an embarrassing disaster, considering also the inability of the meeting to yield a shared statement. Nor were of any reassurance reports of the absence of a formal and documented proposal set forth by the Greek delegation, which purportedly made only generic requests, despite the worsening of the emergency. However, if the rumours reported by the press agencies on the contents of the statement that was about to be released should be heeded, the Greek government may have finally realised that for the time being there is no alternative to moving within the realm of the existing programme, be it “extended” or “amended”.
Furthermore, there is a basic element of incompatibility in the requests made by the new Greek government, which will soon come to the surface. There is much talk of more easily attainable primary balance objectives, of even less than 2% of GDP, and it is a positive fact that questions are being raised on what primary surplus levels may be credibly kept up in the long term. On condition of not forgetting that every one per cent drop in primary balance will add to the already substantial financial requirements that need to be covered in the next five years (i.e. the period that is in no way touched by plans to restructure debt towards the EU), which amount to around 9 billion euros, of which only a part will realistically be raised through stronger GDP growth. And another multi-billion increase in the borrowing requirement will result from the freezing of the privatization programme.
Funding could ideally be raised by issuing debt on the market, but this is not a viable option, if not on the short end of the maturity curve (1-12 months), and within the limits of the ability of the banking system, the sole stable buyer, to absorb the issues; also, the cost would be greater than that of the assistance programme. The only viable alternative, therefore, is an increase in European loans (for instance, ESM funds could be used to purchase approximately 25 billion euros in GGBs held by the Eurosystem), which may then activate a virtuous circle that would involve the ECB (with refinancing operations and then the extension of the purchase programme to include GGBs) and the market (possible return of foreign investors). In essence, the lowering of budget goals required to live up to electoral promises will imply greater dependence on international assistance throughout the duration of the legislature, and will increase the need of a third conditioned programme. So much for being free of the troika.
Possibly, data on liquidity available to the state sector in January may be an incentive to keep haughtiness at bay: as a result of an exceptionally negative trend of tax revenues, in part due also to electoral promises, the surplus was only 443 million euros, against 1,370 budgeted. Technical consultations with the EC have started to mark the issues on which the parts agree and those on which they disagree; this is a development that at least brings an agreement at the February 16 Eurogroup meeting back within the realm of conceivable outcomes. But it will soon take a very imaginative rhetoric indeed to make reality compatible with the captivating electoral promise of shoving the Troika aside.
Quelle: BONDWorld.ch
Newsletter
