It is precisely five years since Mario Draghi declared the European Central Bank ready “to do whatever it takes” to preserve the euro. With the eurozone’s recovery in full swing and the ECB starting to edge towards an exit from stimulus, there could be few better ways to mark the anniversary than a successful sovereign bond issue by Greece — the biggest casualty of the single currency area’s debt crisis.
The €3bn sale of a 5-year bond — of which about half came from existing investors who swapped their holdings of debt maturing in 2019 — is a tentative first step. It may say as much about investors’ desperate search for yield as it does about Greece’s rehabilitation with capital markets (a yield of 4.625 per cent on the new bond is less impressive than it seems, given the negative yield on German 5-year debt). Yet it is still a breakthrough to be celebrated.
The last time Athens was able to raise money on the open market was in 2014, shortly before the radical Syriza coalition arrived in government, throwing Greece’s bailout programme into disarray. Yet for all the turbulence, investors who bought those bonds — even as recently as February — stand to make a healthy profit.
Yesterday’s bond sale is a reflection of the progress Greece has made and a precondition of further progress.
Prime minister Alexis Tsipras, who took Greece to the brink of bankruptcy by resisting austerity, is intent on clearing the hurdles set by creditors, because he wants to be able to make a clean break from the EU’s bailout programme when it ends next summer. To this end, he has led a huge effort to produce a fiscal surplus, including a punishing spending squeeze and legislation to widen the tax base and cut pensions. In return, Greece has secured its next tranche of bailout money and its creditors have promised further debt relief in a deal to keep the International Monetary Fund involved in the bailout.
These arrangements are far from perfect, but it is clearly in the interests of all sides to make them work and avoid a fourth Greek bailout. Yesterday’s bond sale suggests investors are becoming more confident that Greece will persist with painful reforms; and that despite the political obstacles, creditors will eventually assent to the debt relief needed to put the country’s finances on a sustainable footing.
Regaining access to capital markets — as Portugal and Ireland did well before exiting their bailouts — is a necessary step if Greece is to regain its financial independence. It would also be a precondition for the ECB to include Greek debt in its asset purchase programme, as Athens hopes it will.
There are plenty of reasons to query the Syriza government’s commitment to reforms; and Germany’s willingness to deliver debt relief, even once September’s elections are over. There are also worries over the impact of fiscal consolidation; for vulnerable groups in society and for a fragile corporate sector — with knock-on effects for banks burdened by non-performing loans. The IMF believes the targeted fiscal surplus of 3.5 per cent of gross domestic product to be unsustainable.
Yet there are also grounds for hope that Greece has finally turned a corner. After three years of flat output, the economy returned to modest growth in the first quarter. The labour market has improved, even if this is mainly due to an increase in part-time employment. Tourism has thrived and exporters are benefiting from the recovery in demand across the eurozone.
Greece’s return to bond markets is no panacea but it is a welcome sign of returning normality; and after so many false starts, it could provide a much-needed boost to confidence.