Time is running very short for an agreement on how to ease the Greek debt, and a fair amount of distance still remains between the International Monetary Fund and Berlin. A new effort will be made on the sidelines of the G7 meeting in Canada at the end of May for an agreement that will persuade the IMF that Greece’s debt is sustainable – a necessary condition for Greece to attain full market access.
Major international firms tell Kathimerini that an IMF departure as well as the absence of a strict framework of post-program surveillance would send a negative message to the markets and raise the cost of borrowing for Greece.
While the Fund’s role in the Greek program is not as important as in the recent past, its presence constitutes a significant dimension for the markets, according to Barclays economist Francois Cabau. “If the IMF departs from the Greek program, that would be a bad sign for investors,” he adds.
Similarly, Athanasios Vamvakidis, managing director and head of European G10 Foreign Exchange Strategy at Bank of America Merrill Lynch in London, warns that “if the IMF refuses to participate in the Greek program after an agreement on the debt, insisting that the Greek debt continues to be unsustainable, this would have the opposite effect and maintain the country’s risk rating at very high levels.”
That view is also shared by domestic analysts, who believe a deal on the debt is the catalyst the stock and bond markets need.
Still, a clear and absolute pledge to ease the Greek debt is even more important than the IMF’s participation, and, for now, that “is not there,” says Oliver Adler, chief economist at Credit Suisse: “That would reduce the risk of new obstacles in the market. But my gut feeling is that such a pledge is going to be further delayed.”
At the same time the government is refusing a precautionary credit line, in the name of the much-heralded “clean exit.” It is effectively refusing cheap liquidity from the eurozone and admission into the bond-buying program (QE), which according to the Bank of Greece would cut bond yields by 50 basis points.