Regling sees Greek re­turn to mar­kets in 2017

Kathimerini English - - Front Page - SOTIRIS NIKAS

Greece can re­turn to in­ter­na­tional mar­kets with small bond is­sues next year, Euro­pean Sta­bil­ity Mech­a­nism (ESM) Man­ag­ing Di­rec­tor Klaus Regling said in an in­ter­view with Kathimerini’s Sun­day edi­tion.

For this to oc­cur, how­ever, the Ger­man of­fi­cial says, the Greek gov­ern­ment must stick to the re­form pro­gram and, at the same time, make sure it at­tains a pri­mary sur­plus “over the medium term.”

De­spite the fact that spec­u­la­tion about a pos­si­ble Bri­tish exit from the Euro­pean Union is caus­ing un­cer­tainty in cap­i­tal mar­kets, Fi­nance Min­istry of­fi­cials re­main fo­cused on see­ing Greece mak­ing a re­turn to mar­kets in 2017.

Regling is on the same page. “I think Greece should be able to go back to the mar­kets in 2017 pro­vided the gov­ern­ment fol­lows the agreed re­form path under the ESM pro­gram,” he told Kathimerini.

“Also, the gov­ern­ment should im­ple­ment cred­i­ble fis­cal poli­cies with a pri­mary sur­plus over the medium term,” he said, with­out go­ing into specifics.

The above com­bi­na­tion, Regling told the news­pa­per, “will en­hance in­vestor con­fi­dence and cre­ate the right frame­work for growth.”

The head of the ESM, which is Greece’s big­gest lender, points out that “in the sum­mer of 2014 Greece demon­strated that a re­turn to the mar­ket is pos­si­ble by suc­cess­fully is­su­ing a 3- and a 5-year bond.”

How­ever, Regling cau­tions that mar­ket fi­nanc­ing will be ex­pen­sive ini­tially com­pared to ESM loans.

“There­fore I rec­om­mend that Greece should be cau­tious in the be­gin­ning and not bor­row too much on the mar­kets. But the gov­ern­ment should test the mar­ket be­fore the end of its ESM pro­gram just as other pro­gram coun­tries did be­fore they ex­ited their pro­grams,” he said.

Greek financial of­fi­cials are aware of the risks in­volved in a mar­ket re­turn. That is why they have made it clear that the first bond is­sues should not aim to cover the coun­try’s bor­row­ing needs, some­thing that could re­sult in Greece find­ing it­self with its back against the wall and would not help keep in­ter­est rates low. Like Regling, Greek of­fi­cials say that the first bond is­sue must take place while Greece is still in the pro­gram.

So the ques­tion is: When should a new bond is­sue take place? Ac­cord­ing to sources inside the Fi­nance Min­istry, the tim­ing will de­pend on two fac­tors.

1. There should be no on­go­ing re­view by Greece’s lenders. This means that if the bond is­sue does not take place in the next cou­ple of months – a rather un­likely sce­nario – then it would have to take place af­ter the sec­ond pro­gram re­view this fall. The com­ple­tion of that re­view will de­pend on how quickly the gov­ern­ment im­ple­ments the prior ac­tions that must be car­ried out first as well as the ac­tions of the sec­ond re­view.

The in­sti­tu­tions are pres­sur­ing Athens to speed up the implementation of the mea­sures so as to demon­strate that Brexit would not have an effect on Greece.

2. Greece must have al­ready en­tered the Euro­pean Cen­tral Bank’s quan­ti­ta­tive eas­ing (QE) pro­gram. In other words, in­vestors must know that they can sell any bonds they have bought on the sec­ondary mar­ket. The ECB has said that this will only hap­pen af­ter a deal on Greek debt re­lief. Once this is in place, the ECB will ham­mer out its own study on the Greek debt, and should it con­clude that it is sus­tain­able, then it will in­clude Greece in the QE pro­gram.

Fur­ther­more, it must be un­der­scored that the ECB can­not buy bonds as long as a re­view is pend­ing. This means that the gov­ern­ment must have wrapped up the sec­ond re­view. Oth­er­wise, it is likely that it will not man­age to ben­e­fit from the ad­van­tages of QE as the pro­gram runs out in March 2017 – un­less, as ru­mor cur­rently has it, the ECB de­cides to give a six-month ex­ten­sion.

The State Audit Coun­cil yes­ter­day ap­proved the mem­o­ran­dum of un­der­stand­ing signed by the gov­ern­ment and the Lamda De­vel­op­ment-led con­sor­tium for the Elliniko plot in south­ern Athens. It now re­mains for the MoU to be ap­proved by Parliament, ex­pected in the com­ing weeks, as pledged to the coun­try’s cred­i­tors.

Klaus Regling, the head of the ESM, which is Greece’s big­gest lender, points out that ‘in the sum­mer of 2014 Greece demon­strated that a re­turn to the mar­ket is pos­si­ble by suc­cess­fully is­su­ing a 3- and a 5-year bond.’

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