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Reform fatigue hinders a true Greek recovery
BREAKING News
By Stephen Pope, Managing Partner
Greece has returned successfully to capital markets
Spreads between Greek and German bonds widening
Greece will remain dependent on financial support
The Eurozone member where the sovereign debt crisis began, Greece, is still far from completing a full economic recovery. Of course, when circumstances are dire, one takes what good news one can, e.g. the government budget points to a primary surplus of EUR 812 million this year. Similarly, in the current low bond yield environment, Greece was able to lure investors as it made a successful return to the international capital markets in April.
The national treasury placed EUR 3 billion of 5-year bonds at an interest rate of 4.95 per cent. The yield did fall in the secondary market to 3.986 percent on June 10th when the spread over German 5-year BOBL’s contracted to +355 basis points. However, since then the yield and spread have started to widen, see chart, with excellent rotation in the channel to close last week at a yield of 4.214 per cent and a spread of +390.6 basis points
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Greece had to find EUR9.3Bn cash to redeem debt maturing in May. Bailout money in May and the new bond issue has simply been used to pay old debts. Maybe it is just me, but it’s hard to see much progress there.
However, dealing with the reality/fantasy that is Eurozone finance, there was never really a doubt that the Eurogroup decision last week would be to approve the latest tranche of aid for Greece. Still, even with access to the capital market and with the previously agreed rescue funds now expired, Greece is likely to remain dependent on financial support from its international lenders.
I remain convinced that Greece teeters on the edge of a political crisis. We see in the opinion polls the centre-left group, PASKOK has vanished and key gains since the last general election have all been made by Syriza and Golden Dawn. The Greek results at the recent European Parliamentary Elections showed Syriza with a lead of over 5 percent on New Democracy.
Mr Samaras should be more careful in choosing his words for we all know what follows pride. Greece is so fragile it would take just one minor event, that could be perceived as systemic, to throw Greece off its grudging recovery track and back into chaos. If that happens, the undertow could yet create trouble in the broader Eurozone.