Greece’s stated aim this year, in the words of its prime minister, is to return to the money markets, and the European Stability Mechanism (ESM) is set to play a key role in that effort, despite European Commission officials and investment managers Pimco saying they don’t expect Greece to return to the markets before 2015.
Athens has repeatedly said that it will tap the markets in the second half of 2014. Market professionals take it for granted that the ESM will guarantee the project’s success by offering some sort of credit line. One of the main scenarios under consideration is for the ESM to support the Greek effort by stating in advance that it will cover a significant part of the state bond issue, to the tune of 33 to 67 percent.
Therefore if Greece proceeds with the issue of five-year bonds to borrow 2 billion euros and ESM states it will cover 50 percent of it, then – depending on the response by private investors – the European Mechanism could proceed to the purchase of bonds up to 1 billion euros. That move would essentially safeguard that the issue would not be left uncovered, with the indirect support convincing even the most skeptical investors to participate in the Greek issue.
Of course such support would come with conditions attached, mainly concerning the implementation of the structural reforms Greece has agreed to in the context of its fiscal streamlining.
Nevertheless a European Commission document dated December 16, 2013 that emerged on Friday suggested Greece will only make a partial return to the money markets in 2015. In a response to an investigation by the European Parliament on the bailout agreements for eurozone countries, the Commission expressly stated that “the expectation is that market access for Greece could partly resume from 2015.” On Friday a senior officer at Pimco also told German newspaper Suddeutsche Zeitung that the firm is not expecting Greece to return to the market before 2015.
Despite these statements, the messages coming from the international markets point to an eagerness on the part of investors to buy Greek debt again, as they watch the spread between the benchmark 10-year bond with the German 10-year bund continue to drop.