Greek budget gains with bonds no succor for Samaras

As Germans are poised to reward Chancellor Angela Merkel with another four years in power, Greek Prime Minister Antonis Samaras is struggling to convince his countrymen her recipe for economic health is the right one.

A possible budget surplus this year before interest payments that Samaras hopes will open the way for more debt relief isn’t resonating with Greeks faced with almost 28 percent unemployment and a sixth year of recession. The latest opinion poll indicates a drop in support for the euro and also shows that the anti-austerity Syriza party is nosing ahead of Samaras’s New Democracy party.

Germans have paid the bulk of the 240 billion euros ($319 billion) of rescue funds pledged to Greece since 2010. With Greek 10-year bond yields still five times Germany’s, they may need to stump up more. The troika of inspectors from the European Commission, International Monetary Fund and European Central Bank will begin their quarterly review in Athens on Sept. 17, less than a week before German elections.

“It will be another noisy review by the troika,” Wolfango Piccoli, an analyst at Teneo Intelligence in London, said by e- mail yesterday. “The most politically salient issue that will have to be tackled during the review relates to the financing gap that will open up from mid-2014.”

While the yield on 10-year Greek bonds has dropped to 10.32 percent from more than 20 percent a year ago after the best rally in the euro region, the cost of borrowing compares with 4 percent for Ireland, whose government asked for a bailout six months after Greece.

The epicenter of the European debt crisis that erupted in 2010, Greece remains reliant on handouts and is locked out of markets that could provide financing.

Greece’s funding needs total as much as 11 billion euros for the next two years, Finance Minister Yannis Stournaras said on Sept. 9. European Central Bank Governing Council member Luc Coene, who’s also head of the National Bank of Belgium, said two days later that Greece will need more help.

“It’s clear that we haven’t reached the end of the Greece problem for the moment, and that additional efforts will have be made — one time for certain, possibly two times,” Coene said in an interview on RTBF Radio. “There’s an improvement in the situation, but it’s very slow.”

In October, Greece will be in line for another 500 million euros from its bailout package and the same amount from bond profits, assuming it passes the next set of milestones.

The troika will focus this month on lagging state asset sales and tax collection, and on how the country has progressed in dismissing and reassigning thousands of state employees. The team also will review the macroeconomic assumptions that underpin the Greek program and targets such as debt sustainability, which is required to keep the IMF on board.

Stournaras will point to a primary budget surplus of 2.9 billion euros in the first eight months of the year and a better-than-forecast performance in gross domestic product, buoyed by a bumper tourism year.

“The projected small primary surplus for this year is a positive development,” said Athanasios Vamvakidis, a currency strategist at Bank of America Merrill Lynch in London. “Greece still has a very long way ahead.”

Fiscal achievements aside, delays in structural reforms “question the growth potential of the economy in the long term,” he said.

International investors are expressing renewed faith in the European economy, according to the latest Bloomberg Global Poll, with 40 percent saying the euro-area economy is improving, more than four times the number in May. Almost a third of those asked said Greece will dodge bankruptcy, the most optimistic response since the question was first asked in June 2010.

“The fear of course that Greece, now or even later, will leave the euro has dissipated,” Constantinos Botopoulos, chairman of the Hellenic Capital Markets Commission, said in an interview on Sept. 6. Investors “feel that the turnaround is near because most of the difficult things have been done. There are positive signs for the economy. All this is sinking in.”

The Bloomberg poll showed 54 percent of people said Greece’s position in the euro area will be weaker once Germany’s elections pass this month. Merkel’s Christian Democratic bloc is leading polls in Germany by as much as 15 percentage points, based on seven surveys.

A Public Issue poll for Skai TV in Athens released Sept. 11 showed that support for the euro currency among Greeks fell to 51 percent from 67 percent a year earlier. More Greeks, or 55 percent, were negative about the European Union than supportive. A total of 76 percent oppose bailout policies, the poll of 1,024 people showed. The margin of error was 3.2 percentage points.

Greeks are wondering how a primary surplus puts food on the table and keeps people warm. A group of 15 lawmakers from Samaras’s New Democracy party have sent a letter to Stournaras to seek subsidies for heating oil for more people, according to Sept. 9 report in the To Vima newspaper.

Stournaras and Samaras have said they don’t plan further across-the-board wage and pension cuts that hurt Greek incomes. The focus will instead be on structural measures, such as the one proposed by the government to the troika, of cutting exemptions in social security contributions.

The achievement of a primary surplus has been “elevated to some sort of Holy Grail mainly for domestic political purposes to signal the country is turning a page,” said Piccoli at Teneo. “Bottom line, collecting tax revenues is still a big challenge and thus a primary surplus can only be achieved by squeezing public investment spending,” he said.


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