ATHENS – After stiffing investors earlier this year with 74 percent losses and still wracked by a deep recession, $460 billion in debt, and unable to raise revenues or collect from tax evaders, Greece seems unlikely to win back trust from bond markets for at least five more years – possibly even 10 years, a survey of financial leaders taken by the Bloomberg News agency has shown.
New Prime Minister Antonis Samaras’ uneasy coalition government, which includes the PASOK Socialists and tiny Democratic Left, also faces the huge challenge of trying to convince Greece’s public lenders, the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) that is putting up $325 billion in two bailouts, to back off on more austerity measures. Samaras supported the conditions but during a fierce campaign leading up to the June 17 elections said he would try to renegotiate some of the most onerous terms, such as pay cuts, tax hikes, slashed pensions, and reducing the minimum wage.
Greece is surviving on a first rescue package of $152 billion and a second for $173 billion, about to start being released. These funds will run out in three years, at which time, unless Greece has returned to growth, it will need another bailout because private investors have lost trust in a government which forced losses on banks, funds and bondholders.
Three of 20 companies surveyed by Bloomberg that deal directly with sovereign bond issuers expect it to take at least a decade before Greece issues debt again. Ten say investors would lend money to the country no sooner than 2017, while five predict 2015 at the earliest. The median forecast was a minimum of five years. “The challenges facing Greece remain extremely large,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “It will be a long while before they can get back to the market.”
Greece last sold bonds in March 2010 before the extra yield that investors demanded for holding its 10-year securities instead of German bonds ballooned to a new record for the Eurozone of 17 countries. That forced then Prime Minister George Papandreou, with Greece facing $10.7 billion of bond repayments, to start bailout talks with the Troika. The attached austerity measures led Greeks to protest, strike and riot for two years, forcing Papandreou out of office, but the lingering effects remain: 22.6 unemployment, a 6.5 percent shrinkage in Gross Domestic Product (GDP) and 1,000 businesses closing every week.
“The only thing that will get investors’ trust back is to get something that looks like a fiscal union because Greece isn’t going to grow out of the problem,” John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London, told Bloomberg. “Investors have given up on the concept of a union that doesn’t have a fiscal transfer, but does have the interest rate and currency locked together.”
The nation’s ratio of debt-to-GDP is projected to rise to 168 percent next year from 161 percent, according to the European Commission’s report of May 11. The economy will contract 4.7 percent this year and show zero growth in 2013, the commission said. “The country is still insolvent and there is little progress in the way of fiscal adjustment and growth,” said Piero Ghezzi, the head of global economics at Barclays Capital in London. “Investors will need to see what the end game for Greece is before they buy its bonds again. A country can borrow in the market only if there is demand for its debt. For Greece, that can be easily five years away.”
Petros Christodoulou, former head of the Greek debt office, said that his nation is not even close to selling bonds and there may be common euro debt issuance by the time it returns to the markets. He also said Greece will remain a member of the Eurozone. Padhraic Garvey, head of developed market debt at ING in Amsterdam, said, “Greece could return to the market quickly if leaders make the right policy decisions.” “But the risk that things could go in a very wrong direction, taking Greece much longer to return to the market, is greater than the other way around,” he expressed.
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