Samaras’s crumbling Greek exit lacks backing from economists

Antonis Samaras’s plan for Greece to exit its bailout early is crumbling in the face of a market rejection. Economists say it might not have been such a good idea anyway.

Eighty-five percent of respondents to a Bloomberg News survey said the prime minister’s proposal didn’t make economic sense, partly because of Mario Draghi’s insistence that junk- rated countries must remain under some kind of surveillance program to benefit from new European Central Bank measures.

Greek 10-year bond yields have surged to the highest in nine months as Samaras’s plan for a year-end exit unraveled. The prime minister’s push met resistance from euro area and International Monetary Fund creditors, with finance ministers from the 18-nation currency bloc publicly voicing doubts at an Oct. 13 meeting in Luxembourg.

“What’s important from an economic perspective is that Greece continues to commit to a strong reform program,” said James Nixon, an economist at Oxford Economics Ltd. in London. “The government is to a certain extent desperate to take its foot off the reform gas pedal and ease back a bit to try to boost its popularity.”

Samaras has said his government may pass on IMF funds available in 2015 and cover its financing needs from markets after selling bonds for the first time since 2010 this year.

Investors Fret

The yield on Greek 10-year debt rose 9 basis points to 9.05 percent at 10:07 a.m. in Athens today, and has surged more than 30 percent this week. The premium investors charge to hold the bonds over German bunds, Europe’s benchmark, is at the widest in more than a year. The Bloomberg survey of 15 economists was conducted Oct. 3 to 15.

While 73 percent of economists in the Bloomberg survey said Greece won’t need a third bailout, compared with 40 percent in the last poll in July, half said the country can’t cover its funding needs from the market without the IMF money. Nixon said markets will “bolt” if Greece both eases back on reforms and walks away from the IMF.

IMF Managing Director Christine Lagarde has offered a similar assessment, saying this month that Greece would be in “a better position if it had precautionary support.”

“We are ready to help and we believe that it could be effective,” she said in Washington on Oct. 9.

Greek Finance Minister Gikas Hardouvelis told lawmakers in Athens yesterday the country’s economic fundamentals remain strong, given its improving fiscal position. “Anyone who follows international markets knows they often get nervous and overreact,” he said.

Political Strife

Adding to Samaras’s troubles, Alexis Tsipras of the anti- bailout opposition Syriza party is pushing for elections in early 2015. Polls indicate Syriza, which advocates a “significant” writedown on Greek public debt and the annulment of reforms, would be the largest party in the parliament if an election were held now.

Early elections “remain a fairly high risk event,” Citigroup Inc. economists including Guillaume Menuet said in a note yesterday. A government led by Syriza “is likely to take the degree of confrontation with Greece’s official lenders much higher than in the past, possibly jeopardizing still-fragile foreign investor sentiment,” they said.

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