Funds reluctant to take the risk

Greek attempt to persuade US investors to swap their old sovereign debt for new paper ended in failure

The government’s objective of returning to capital markets is becoming increasingly distant, following the official decision by the president of the European Central Bank, Mario Draghi, to rule out Greece’s entry into the ECB’s quantitative easing (QE) program.

Kathimerini understands that investors were already particularly reserved about Greece before the Italian banker banished any talk of QE inclusion on Thursday, as they were not at all willing to exchange the existing debt of the Greek state for new paper.

On their recent trip to the US, Finance Minister Euclid Tsakalotos, his alternate, Giorgos Houliarakis, and the head of the Public Debt Management Agency, Dimitris Tsakonas, didn’t just attempt to test the mood regarding a new bond issue after the Eurogroup’s debt relief decision in June; they also tried to sound out funds in New York and Boston on an older proposal that the Italian crisis in May had forced the Greek authorities to shelve.

That proposal involved approaching the investors that had stayed out of last November’s bond swap, who held debt totaling 4.2 billion euros, and might be convinced to exchange their paper now. However, the Greek officials ran into a wall of reluctance by investors who believe that the risk of the Greek debt’s long-term sustainability has not yet been banished, as would have been the case with the adoption of the so-called French mechanism, which associated debt relief measures with the expansion of the Greek economy.

If one adds Draghi’s resounding “No” on Thursday, then the prospects of a new return to the capital markets in the near future appear very remote now.

Although the Greek bond purchases by the ECB would not have been of any significant amount, as the QE program ends in December anyway, the signal it would have given to investors would have been decisive in increasing market confidence in Greece.

Consequently, three weeks before the country emerges from the bailout program, it has not only missed out on QE inclusion but also on convincing investors to swap the Greek debt they already hold for new paper.