‘Plausible’ that Greece will exit bailout programme this year – HSBC.Greece may be able to exit the bailout programme established by international authorities as soon as this year, HSBC has said, in a sign of just how far the eurozone has come since the depths of the debt crisis in 2011.
The country last year regained access to capital markets, its economy is looking less dreary, and it will have enough cash reserves in August of this year to finance itself for the next “year or so”, said Fabio Balboni, European economist at HSBC.
“For a number of years, there has been concern about a possible Greek exit from the eurozone. But, having regained access to markets last year, in 2018 Greece might exit its bailout programme instead, after eight long years, and nine finance ministers,” he said.
However, it is less clear whether Greece will be able to make a clean break, one without a follow-up scheme.
“A ‘clean’ exit might be feasible, at least for a period. But a precautionary programme, or at least ‘enhanced’ post-programme surveillance, might be needed to ensure Greek bonds remain eligible in the ECB refinancing operations,” said Mr Balboni.
If Greece is successful in moving past the string of bailouts it has received over the past eight years from the EU and International Monetary Fund, it would mark the latest sign of progress for one of the countries that was badly maimed during the debt crisis.
Greece’s jobless rate was 26.5 per cent in 2014, with youth jobless reaching 52.4 per cent that year. In October of last year, Greece’s overall unemployment had eased to a still-elevated 20.6 per cent, data from Eurostat show.
Meanwhile, the economy grew sequentially in the third quarter 2017 for the third quarter in a row, the longest such streak since 2006, according to HSBC’s tabulations.
Economic and political improvements allowed Greece to re-enter international debt markets last year. It sold a five-year bond in July, and launched a debt exchange in November.
There has also been a vast improvement in the secondary market: the yield on Greece’s benchmark 10-year bond was 3.9 per cent on Thursday. It had surged close to 40 per cent in 2012, according to Reuters data. Trading activity is muted in Greek sovereign bonds, meaning that the moves may be exacerbated relative to broader investor sentiment.
Mr Balboni noted that Greece is “still far from an investment grade [and] the country remains excluded from the [European Central Bank’s] QE programme.” He reckons inclusion into the bond buying programme is “some way off”, which could limit a further reduction in bond yields.
Much hinges on the eurozone’s willingness to provide Greece with debt relief. The bloc owns 80 per cent of Greece’s debt, according to HSBC. Without “substantial” relief, “Greece will fail to meet the IMF’s debt sustainability requirement,” said Mr Balboni.
“Furthermore, under some reasonable assumptions in terms of growth, and with the primary surplus targets agreed at last July’s Eurogroup meeting, Greece’s debt would not stabilise, as cheap eurozone loans get replaced by more expensive bonds,” he added.
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