Although it appears that there will soon – probably in early June – be an agreement between Berlin and the International Monetary Fund on the lightening of the Greek debt, Athens’s road back to international bond markets remains a long one.
The possibility of a small, symbolic bond issue in July cannot be ruled out, but it is not the most likely scenario. This is something the government desires because it will constitute a tangible justification for the tough austerity measures it has agreed to, as it will signal an “exit course from the crisis and the bailouts.”
Yet that will be very difficult indeed. Any bond issue at any time necessitates an agreement on the easing of the debt and a decision by the European Central Bank for the inclusion of Greek bonds in its quantitative easing (QE) program.
“No one will take the risk of buying Greek bonds unless they are certain there is someone they can sell them to, that is the ECB,” says a bond market professional.
Once the debt easing decisions are made next month, it will be several weeks before the IMF reaches a verdict on the debt’s sustainability and its participation in the Greek program. Only then can the ECB decide about QE, probably some time in July. According to a source familiar with the eurozone central bankers’ thinking, if the debt measures are not clear enough or if the participation of the IMF is not full, the decision about Greece’s inclusion in the QE program will be far from easy.
Even if there is a bond issue in July it will be a small one and will not be meant to refinance the bonds expiring at the time (this will be paid out of the tranche Athens gets from Greece’s creditors).
Another factor that rules out a bigger bond issue this summer is that the Single Supervisory Mechanism of the ECB has set limitations on the volume of Greek paper that the country’s banks are allowed to buy. Therefore if something goes wrong with the foreign investors, the Greek banks will not have the capacity to cover a major bond issue.
In any case, Greece’s full return to the markets will be neither swift nor easy. After all, it is not in the country’s financial interest, as replacing the cheap funding flowing in from the creditors with more expensive money from the markets will have an impact on the sustainability of the national debt.