(c) 2013, Bloomberg News.
(c) 2013, Bloomberg News.
ATHENS, Greece — Greek Prime Minister Antonis Samaras wants his country's latest bailout review concluded by the end of the year to keep the money flowing. Bond investors might forgive him should he fail to meet that deadline.
The yield on Greece's 10-year bonds has dropped by more than a percentage point since Sept. 22, when representatives of international creditors arrived in Athens to assess progress on complying with the terms of their rescue loans. That's even after rising 88 basis points to 8.86 percent over the past three weeks as talks dragged on. Greece had 7.5 billion euros ($10.2 billion) of cash reserves at the end of September and less than 2 billion euros of bonds maturing before May.
"There's not much sense of crisis among investors, neither about the domestic political situation in Greece, nor the tensions between Greece and its European partners," said Ebrahim Rahbari, an economist at Citigroup in London. "The fact that there don't seem to be immediate liquidity needs certainly helps to support that view."
Greece assumes the rotating European Union presidency on Jan. 1 and Samaras is keen to use its turn to showcase the country's economic recovery and exit from a crisis that has reduced output by about 48 billion euros.
Finance Minister Yannis Stournaras submitted on Nov. 21 the 2014 budget, which sees the economy expanding 0.6 percent next year after six annual contractions totaling 23 percent of gross domestic product. There will be a fiscal surplus before interest payments in 2013, a year ahead of schedule, he said.
The same day, European Union Economic and Monetary Affairs Commissioner Olli Rehn said talks with the mission heads from the troika of the European Commission, European Central Bank and International Monetary Fund might run into next year. The two sides need to agree on how to meet budget targets. Talks are set to resume early next month after a pause.
"Both sides can afford to have a little period of tension as long as it does not get out of hand," Holger Schmieding, chief economist at Berenberg Bank in London, said by email on Nov. 22. "The situation is difficult, but it does not need to be resolved immediately."
Stournaras told lawmakers today that the "road ahead is long" as Greece moves to a new economic model to foster growth. The budget includes what he called structural reforms rather than "horizontal" cuts to wages and pensions.
The relative lack of urgency contrasts with when Samaras, 62, came to power after narrowly winning elections in June 2012 at the second attempt in six weeks.
During the month after the vote, yields on 10-year bonds soared 3.53 percentage points in less than a week as Samaras's coalition prepared to embark on a troika review that lasted four months. The government had to redeem 3.1 billion euros of bonds held by the ECB in August, with 4.2 billion euros of aid frozen as Greek politics threatened an exit from the euro area.
This time around, Greece's creditors have so far delayed disbursement 1 billion euros, due in October, from a bailout currently running at 240 billion euros.
Yet bond investors may be underestimating the risk from political instability, according to Lefteris Farmakis, an analyst at Nomura International in London.
Pasok, the smaller of the two parties in the coalition and formerly the traditional adversary of Samaras's New Democracy, expelled a lawmaker earlier this month after she voted against the government in a no confidence motion brought by the opposition. The dismissal reduced to four the majority in the 300-seat legislature that Samaras can rely on to pass budget measures agreed with the troika.
"Investors are still confident about a successful conclusion of the review because the amounts are tiny compared with what has already been legislated," Farmakis said. "What investors do not appreciate I think is the potential for political destabilization."
Samaras's government and troika differ on issues including the scale of fiscal measures needed for Greece to achieve its budget projections next year and how far the country should ease restrictions on home foreclosures, an issue that has drawn opposition from lawmakers within the coalition parties.
The IMF said in July the financing gap for next year would be 4.4 billion euros, and the fund isn't authorized to continue paying its share of the bailout unless the hole is plugged.
Stournaras said this week that Greece won't need new loans or additional austerity measures to cover the shortfall and the government has targeted a return to international bond markets to sell new debt in 2014.
"Don't worry, we will find a solution," Stournaras told reporters on Nov. 25 after a meeting with Samaras in Athens. "We did it last year, and we will do it again this year too."
_ With assistance from Antonis Galanopoulos in Athens.