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PM Samaras sees Greek bond yields falling more

By Matthew Winkler, John Fraher & Nikos Chrysoloras

Prime Minister Antonis Samaras said he expects Greek bond yields to decline further and signaled he has no immediate plans to sell more debt, as a recovery takes hold in the former epicenter of the euro region’s debt crisis.

“We anticipate bonds and t-bills’ interest rates to decline, and further enhancement of liquidity through investment and privatizations,” Samaras said in an interview in Athens last week, a few days after the first Greek bond sale in four years. “We didn’t want to borrow any more than we needed.”

Greece set off Europe’s debt crisis in 2009 when the government revealed its budget deficit had ballooned to more than five times the euro area’s permitted limit, eventually leading to two international bailouts, totaling 240 billion euros ($332 billion).

Capital is now flowing back into the Mediterranean state and the total return on the Greek 10-year note has risen almost 400 percent since Samaras came to power in June 2012. That’s more than any technology stock in the Standard and Poor’s 500 Index over the same period.

Samaras, 62, said economic indicators show that Greece can stand on its own feet, without further assistance from euro-area partners and the International Monetary Fund. “We don’t need more money. We have no fiscal gap, we have no financing gap and, on top of this, we have the ability to go to the markets if necessary.”

“We reached rock bottom and now we can only go up and we will only go up,” said Samaras, who holds a master’s degree in business administration from Harvard University.

Bond exile

Greece returned from its bond exile on April 10, selling 3 billion euros ($4.15 billion) of five-year notes to yield 4.95 percent, in an offering that was oversubscribed almost seven times. The price of the note has since rallied, as the yield fell to as low as 4.8 percent as of April 18. In her visit to Athens, the day after the bond sale, German Chancellor Angela Merkel applauded Greece for its “step toward normalcy.”

Samaras said his country is in no rush to tap the markets again. “In the future, we will ask for the money we want, at a lower rate,” he said in the April 16 interview with Bloomberg.

Greek bonds have delivered the highest returns this year among more than 30 sovereign debt markets tracked by Bloomberg Bond Indexes, with the 10-year benchmark even falling below 6 percent this month, down from as much as 44.21 percent in 2012.

Public debt

As public debt remains close to 180 percent of gross domestic product, which is the highest ratio in the 18-member euro area, some analysts doubt that this rally is sustainable. Andrew Mulliner, money manager at Henderson Global Investors in London told Bloomberg in a telephone interview on April 9 that his company wouldn’t buy Greek bonds, citing the “very murky picture on the long-term debt sustainability” of Greece.

Samaras counts on Greece’s euro-area partners “keeping their part of the deal” made in 2012, to provide further debt relief to his country, once it achieves a budget surplus before debt-servicing payments.

“If Greece meets the targets, which it has already, the lenders will provide additional debt relief; this was a decision, which was taken in November 2012,” Samaras said. “We did our part of the job, we expect them to do theirs.”

Samaras declined to comment on what kind of debt relief Greece is asking for.

While unemployment just shy of 27 percent is still the highest in Europe and the economy is mired in deflation, Samaras said that companies such as Armonk, New York-based International Business Machines (IBM) Corp. and Palo Alto, California-based Hewlett-Packard Co. (HPQ) are starting to invest in Greece, indicating that Europe’s most indebted nation is turning the corner.

HP, Huawei

“Every day, more and more are coming: for instance Hewlett Packard, IBM, Huawei (002502), and ZTE. Also, over 600 hectares of urban land will be developed in the old Athens airport, by Greek and non-Greek investors, a 7- to 8 billion-euros investment in the next few years,” Samaras said in the official residence of the country’s prime minister in downtown Athens.

As city authorities refurbish a town center beaten up by the riots that accompanied the depths of the crisis, the Athens Stock Exchange’s general index has risen 35 percent in the last 12 months and the Global FTSE Greece 20 ETF (GREK) shows a net inflow of $65 million over the past three months, swelling total assets by 42 percent.

Also, the government and the European Union project that GDP will expand in 2014, after six years of contraction that wiped out almost a quarter of the total size of the economy.

Budget deficit

The narrowing of the budget deficit and overhauls in public administration, as well as the labor, goods and services markets, make Greece a more attractive investment destination, according to Samaras. “Greece was giving investors red tape treatment, now we are giving them red carpet treatment,” Samaras said.

Officials from the troika of Greece’s lenders, representing the European Commission, the IMF, and the European Central Bank, said last month that Greece is on track to meet its budget targets this year. The country now expects the European Union’s statistical agency to confirm that it achieved a so-called primary budget surplus last year, which means that Greece only needs financing to service old debts.

“We expect by the year 2015 that we will have not simply primary surplus, but that we’re going to have a fiscal surplus. This means we will be able on our own to pay our debt, without borrowing at all. There are very few European countries that are doing this today,” Samaras said.

Prolonged recession

The prolonged recession and the biggest sovereign debt restructuring in history have caused a credit crunch in the economy of the nation of 11 million people. “My immediate source of concern is cash, liquidity,” Samaras said in his first interview since Greece’s return to the bond market. “It’s crazy when you have companies that can really succeed, but lack access to finance.”

The recapitalization of the country’s lenders, following a BlackRock Inc asset quality review and a central bank stress test earlier this year, which identified a capital shortfall totaling 6.38 billion euros, will help restore credit in the economy, said Samaras. “Greek banks returned to the market. The recap of the financial sector will improve psychology and allow liquidity to increase.”

Greece is betting on tourism and natural resources to boost recovery, said Samaras, who was first elected to parliament in 1977. “We have to capitalize on our advantages: Natural environment, tourism, and natural resources. We’ve got magnesium, bauxite, rare earths, natural gas and oil, we can exploit.”

Suez, Piraeus

The Mediterranean country also counts on its geographical location, at the crossroads between Asia Minor, Europe, and Northern Africa, to attract investment, according to Samaras. “We are ideally located for transportation and logistics, through the Suez canal to Piraeus and from there to the rest of Europe,” he said.

Samaras is tackling social tensions sparked by the economic crisis that still threaten to rip apart his New Democracy party-led coalition. Youth unemployment is at 58.3 percent, creating a social crisis that has helped fan support for the far-right Golden Dawn party. “What keeps me awake is safeguarding democracy, bringing unemployment down, and fighting extremism,” Samaras said. “These three things can make you have sleepless nights.”

Polls ahead of next month’s elections for the European Parliament show that Samaras’s party is vying for the lead with the coalition of the radical left SYRIZA party. Golden Dawn gets about 8 percent support.

National elections

The next national elections in Greece are scheduled for 2016 and Samaras said his majority in parliament is safe until then. Samaras said he is confident that Greece will avoid snap elections and potential political instability.

“Destabilization would have meant that in the coming elections -- EU and local elections -- that we might lose big. This is not going to happen,” according to Samaras.

Samaras admits to being a workaholic and a sometimes controlling manager. “I have an early warning system: I see the calendar of things that ministers have to do on my computer. If I see they haven’t done so, I call them and ask why they haven’t delivered, even if it’s after midnight. No hanky-panky, no ifs and buts. That’s the only way to do it. We are trying to incorporate this mentality into public administration top down.” [Bloomberg] , Tuesday April 22, 2014 (12:12)  
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