ESM to en­sure suc­cess of bond is­sue

Mech­a­nism may buy be­tween one and two thirds of 5-year debt to en­ter the mar­ket, serv­ing as a guar­an­tor

Kathimerini English - - Front Page -

Greece’s stated aim this year, in the words of its prime min­is­ter, is to re­turn to the money mar­kets, and the Euro­pean Sta­bil­ity Mech­a­nism (ESM) is set to play a key role in that ef­fort, de­spite Euro­pean Com­mis­sion of­fi­cials and in­vest­ment man­agers Pimco say­ing they don’t ex­pect Greece to re­turn to the mar­kets be­fore 2015.

Athens has re­peat­edly said that it will tap the mar­kets in the sec­ond half of 2014. Mar­ket pro­fes­sion­als take it for granted that the ESM will guar­an­tee the project’s suc­cess by of­fer­ing some sort of credit line. One of the main sce­nar­ios un­der con­sid­er­a­tion is for the ESM to sup­port the Greek ef­fort by stat­ing in ad­vance that it will cover a sig­nif­i­cant part of the state bond is­sue, to the tune of 33 to 67 per­cent.

There­fore if Greece pro­ceeds with the is­sue of five-year bonds to bor­row 2 bil­lion eu­ros and the ESM states it will cover 50 per­cent of it, then – de­pend­ing on the re- sponse by pri­vate in­vestors – the Euro­pean Mech­a­nism could pur­chase bonds up to 1 bil­lion eu­ros. That move would essen­tially safe­guard that the is­sue would not be left uncovered, with the in­di­rect sup­port con­vinc­ing even the most skep­ti­cal in­vestors to par­tic­i­pate in the Greek is­sue.

Of course such sup­port would come with con­di­tions at­tached, mainly con­cern­ing the im­ple­men­ta­tion of the struc­tural re­forms Greece has agreed to in the con- text of its fis­cal stream­lin­ing.

Nev­er­the­less a Euro­pean Com­mis­sion doc­u­ment dated De­cem­ber 16, 2013 that emerged yes­ter­day sug­gested Greece will only make a par­tial re­turn to the money mar­kets in 2015. In a re­sponse to an in­ves­ti­ga­tion by the Euro­pean Par­lia­ment on the bailout agree­ments for eu­ro­zone coun­tries, the Com­mis­sion ex­pressly stated that “the ex­pec­ta­tion is that mar­ket ac­cess for Greece could partly re­sume from 2015.” Yes­ter­day a sen- ior of­fi­cer at Pimco also told Ger­man news­pa­per Sud­deutsche Zeitung that the firm is not ex­pect­ing Greece to re­turn to the mar­ket be­fore 2015.

De­spite th­ese state­ments, the mes­sages com­ing from the in­ter­na­tional mar­kets point to an ea­ger­ness on the part of in­vestors to buy Greek debt again, as they watch the spread be­tween the bench­mark 10-year bond with the Ger­man 10-year bund con­tinue to drop.

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