Greece excluded eurozone bond party

There’s a eurozone bond party on today, and everyone’s invited – except poor Greece.

While most eurozone government bonds are rallying hard on hopes that the European Central Bank will be forced to start buying sovereign debt soon, Greece is an outlier, with its 10-year yield climbing to a one-month high of 8.29 per cent. The Athens stock market is down 2.5 per cent.

Greek financial markets are being buffeted by concerns over an early election next year – which could propel the anti-austerity, left-wing Syriza party into power – and more recently by stalled talks between the government and its “troika” of lenders.

Despite late-night talks in Paris, the Greek delegation failed to strike an agreement with the International Monetary Fund, the European Central Bank and the European Commission on winding up its bailout programme.

The dealmaking over what economic and fiscal measures Greece has to introduce to get its next dollops of international aid is a regular affair since its first bailout in 2010, but this round of talks appears unusually tricky.

Now that it has regained access to bond markets and the economy is on the mend, the Greek government is pushing for an exit to the programme and an end to the regular reviews, replacing it with a fall-back credit line to keep it from falling prey to volatile markets again.

But to do so, Athens needs to reach an agreement with the troika on how to plug a fiscal shortfall for next year in time for the last eurozone finance minister meeting of the year on December 8.


Failing to do so will endanger the coalition government’s chances of beating Syriza at next year’s election. RBS analysts wrote:

Greece’s ambition of exiting the bailout plan before the end of this year appears at risk now, given the deadlock in negotiations with the troika…. Bailout exit and political risks can lead to further widening of spreads and we remain underweight Greek credit.

Jakob Christensen of Exotix argues that the differences between Athens and the troika mean that a deal is unlikely this year, so that the current programme will need to be extended, but he doubts that this will hurt the government’s electoral chances as much as feared.

We don’t think that such a delay will reduce the chance of the coalition’s candidate winning the presidential election as they can claim they stood firm against unreasonable Troika demands; hence our base case is still that early parliamentary elections are avoided.

Source: Financial Times / Nov. 27, 2014


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