ESM’s tranche delay shocks Athens
The European Stability Mechanism (ESM) decided on Friday to withhold the 1 billion euros outstanding from the third bailout review, destined for the repayment of state arrears to third parties.
The decision surprised the Greek government as both the European Commission and the European Central Bank had made favorable recommendations regarding the disbursement of the money to Athens.
Sources say Germany played a decisive role in that development as Berlin’s representative objected to the payment of the money due to the delay in the payment of arrears of 60 million euros, saying that everything has to be done as agreed.
The new deadline for compliance is Friday, June 15, by when the government will have to prove the sufficient repayment of dues to suppliers and taxpayers so that a decision on the disbursement of the cash can be made via a conference call. This means another race against time for Athens, and failure will mean the 1 billion euros will be lost.
This Friday’s decision is seen sending a twin message to Greece: The first part concerns the Greek government’s efficiency deficit and the second regards the need for Athens to be absolutely ready and consistent toward its obligations in terms of prior actions and the multi-bill ahead of the June 21 Eurogroup meeting.
The nonpayment of the ESM tranche, as well as the negative news on debt relief and the fresh pressure on Italian bonds led yesterday to a new increase in Greek bond yields, just shy of the significant 5 percent mark.
Recent developments that have increased the volatility of Greek paper highlight that, for Greece, the markets remain somewhat prohibited, as foreign analysts estimate that the unrest is set to stay for the next 12 to 18 months, while they expect the yield of the benchmark 10-year Greek bond to soar to 6 percent.
The knock-on effect from the rise of Italian yields to Greek bonds was quite impressive as well as very alarming. The extra concerns about the trade war between the world’s largest economies, along with the upcoming board meetings of the Fed in the US and the ECB in Frankfurt add to the uncertainty and explain why any plans toward a new effort by Athens to tap the markets have been frozen.