Antonis Samaras’s plan for Greece to exit its bailout early is crumbling in the face of a vast market unravelling this week. Economists, meanwhile, are in near-unanimous agreement that the Prime Minister’s exit strategy is largely to blame.
Eighty-five percent of respondents to a Bloomberg News survey said the prime minister’s proposal didn’t make economic sense. Instead, Mr. Samaras would have done well to heed Mario Draghi’s insistent calls for junk-rated countries to remain under some kind of surveillance program in order to benefit from new European Central Bank measures.
Greek 10-year bond yields have surged to their highest level in nine months with Samaras’s announcement of a year-end exit to the memorandum. The prime minister’s push met resistance from both Eurozone and International Monetary Fund creditors, with finance ministers across the 18-nation currency bloc publicly voicing doubts at a meeting in Luxembourg earlier this week.
“What’s important from an economic perspective is that Greece continues to commit to a strong reform program,” says James Nixon, an economist at Oxford Economics Ltd. in London. “The government is to a certain extent desperate to take its foot off the reform gas pedal and ease back a bit to try to boost its popularity.”
Samaras has said his government may pass on IMF funds available in 2015 and cover its financing needs by selling bonds in the markets for the first time since 2010.
While 73 percent of economists in the Bloomberg survey said Greece won’t need a third bailout – compared with 40 percent in the same poll in July – just half believe that the country can cover its funding needs on bonds alone. Nixon said markets will “bolt” if Greece chooses to ease back on reforms and walk away from the IMF.
IMF Managing Director Christine Lagarde has offered a similar assessment in recent weeks, claiming that Greece would be in “a better position if it had precautionary support.”
“We are ready to help and we believe that it could be effective,” she said in Washington on October 9.
Greek Finance Minister Gikas Hardouvelis told lawmakers in Athens yesterday that the country’s economic fundamentals remain strong and its fiscal position encouraging. “Anyone who follows international markets knows they often get nervous and overreact,” he said.