Frozen public borrowing until recently

By Tasos Dasopoulos

It will depend on the course of the markets when and if the 12 billion euro lending program announced since the end of last year for 2022 will be completed.

Due to the extremely negative economic situation they compose, high inflation in fuel and food, the continuation of the war in Ukraine and the shift of the ECB to a tighter monetary policy, Greek bonds have recorded significant losses.

The 10-year yield, from 0.8% in July 2021, has now approached 3%. Respectively, the 5 years of negative performance in the summer of 2021 is at 1.75% today.

However, the main reason why YPOIK is reluctant to borrow from the markets, is not the increase in yields. In any case, the lending programs of the last three years, due to the low debt financing needs, are limited in scope and their main goal is the presence of Greece as a regular issuer in the markets.

The main reason for the suspension of the program is the protection of the current holders of Greek bonds from market fluctuations. With the nervousness that exists, both in the Greek and in other titles of the so-called “European region”, a new issue of a Greek bond d today, would mean certain and immediate losses, for those who would buy them. This would result in a faster increase in returns, due to the massive sales that would follow. What is worse, however, is that investors would put Greek bonds back in the “very high risk” category, asking for even higher interest rates in future issues.

Cash and cash equivalents

With the suspended lending program, the coverage of the financing needs falls on the cash of the state, which, in theory, can cover the needs of the country for the next 3 years, without Greece having to borrow from the markets.

After the repayment of the remaining 1.86 billion euros of IMF loans, the country’s cash and cash equivalents are estimated today, close to 38 billion euros. from the markets. In other words, no one can blame a country that has not yet recovered its investment grade and is in a series of crises such as the coronavirus crisis and then the current energy crisis, which avoids – having high availability – borrowing from the markets.

However, competent sources from YPOIK emphasize that the abstention from the markets should not exceed a specific time limit. This is because after a quarter of abstention, the markets will start investing in the scenario that Greece can no longer borrow from the markets.

However, the recent repayment of the IMF and the decision for early repayment of the double installment from the bilateral loans with the Eurozone countries Greece entering the first memorandum are good news with “duration” for Greece. In other words, these repayments of a total of 7.2 billion euros will permanently write off the equivalent amount of debt they give in a difficult situation, the signal that the Greek debt is steadily enhancing its sustainability.