Wall Street Journal
Tsipras is promising some relief from austerity measures while sticking to budget disciplineBy Nektaria Stamouli
Updated Sept. 9, 2018 5:11 p.m. ET
THESSALONIKI, Greece—Greek Prime Minister Alexis Tsipras unveiled his post-bailout economic policy over the weekend, promising some relief from austerity measures while sticking to budget discipline.
His difficulty is that Greece has weaned itself from bailout loans just as bond markets are becoming more volatile again after years of calm.
Greece doesn’t need to borrow from bond markets immediately, thanks to a large cash buffer built up at the end of its eurozone-led bailout. But the country needs to rebuild investor confidence in its bonds if it is to stand on its own feet financially in coming years and avoid turning to emergency loans from Germany and other eurozone governments.
Greece’s 10-year bond yield is well over 4%, a prohibitive level for the country’s tight finances. Investor caution about Greece, which stems in part from uncertainty over whether Athens will roll back austerity, is being compounded by financial turbulence in neighboring Turkey and Italy.
Athens has tapped bond markets twice since July 2017, but it was forced to scrap plans for more trial issues this summer, due to market jitters over Italy.
Mr. Tsipras, speaking at the annual international trade fair in Greece’s second-biggest city, tried to strike a balance between the desires of voters weary from a decadelong recession, and markets and eurozone creditors that don’t want divergence from the stringent policies imposed on Greece during its eight-year bailout.
“I’m not here to hand out benefits,” Mr. Tsipras said. But he also announced ambitions to cut taxes as well as increase spending to boost employment and on welfare programs. He said the measures wouldn’t jeopardize the fiscal targets agreed with its creditors.
He said Greece could achieve its budget surplus targets without implementing a scheduled pension cut. That reduction, which has already been passed into law and is due to take effect in January, is unpopular in a country where pensions have been cut numerous times in recent years. Mr. Tsipras, aiming to reassure the markets, said he would discuss the issue with creditors.
Despite the end of the bailout program, Greece remains the eurozone’s most financially fragile country, vulnerable to market volatility.
“If the criterion for the success of the program is whether the country regained its market access, it has failed,” says Panos Tsakloglou, economics professor at Athens University.
The country’s cash buffer of €24 billion means it can finance itself for about two years without selling new bonds. But Athens needs to issue a few liquid bonds at standard maturities to rebuild an investor base and have an accessible bond market in future.
“We will do that at some point and we will get a good yield,” Mr. Tsipras told a news conference on Sunday.
“There is an overall recalibration of risk appetite; investors have become more risk averse for a variety of reasons: Italy, Turkey, energy markets, trade,” says Wolfango Piccoli, co-president of political-risk consulting firm Teneo Intelligence.
Greece’s credit rating remains below investment grade and its bonds are still too speculative for many major bond-market funds, despite some upgrades by credit-rating firms.
In a speech in Thessaloniki on Saturday evening, the Greek premier said his government will aim to encourage foreign investment and return to an investment-grade credit rating in the next three years.
That could prove difficult for Greece, with its immense debt and limited growth. Cyprus, which exited its bailout program in 2016, has yet to reach investment grade, while Portugal achieved it in 2017, three years after its program’s completion.
“Greece has missed the eurozone’s recent three-year-long prosperous period, when there was a lot of liquidity, strong growth, and low energy prices,” says Mr. Tsakloglou. “The other bailed-out countries were out of their programs earlier and took advantage of that period to rebound quickly.”
Write to Nektaria Stamouli at nektaria.stamouli@wsj.com
No comments:
Post a Comment