Government lending program bets

By Tasos Dasopoulos

The continuation of the very good course of the new debt issues that it had in 2021 will try to repeat the Ministry of Finance for 2022, a year which will have the its own special features.

It may not have been realized, but the coronavirus pandemic and the debt increase (which was horizontal for the whole EU) due to the need to cover the support measures, was for Greece a opportunity.

With the appropriate manipulations, Greece managed – due to the increased editions – to create one yield curve over 3 to 30 years, which would otherwise take much longer to create. This, given the very low financing needs of the debt.

In parallel with the inclusion of Greek bonds in the extraordinary bond purchase program (PEPP) by the ECB, Greek bond yields fell to historically low, while demand led to “strategic” borrowing, such as the double exit in early September with a 5-year and 30-year bond.

In 2022, comes with the first challenge the continuation of the pandemic, which occupied us seriously and in 2021 to which has been added the challenge of high inflation. High inflation, and especially its potential long duration, could lead to a change in the ECB’s monetary policy.

An increase in interest rates from the end of 2022 or the beginning of 2023 will make it very difficult to refinance a debt of 351 billion. euros, as is the Greek. The issue was recently raised in its interim report, and its commander Bank of Greece Mr. Giannis Stournaras. Moreover, especially for Greece, there is the time milestone of March when with the end of the extraordinary bond buying program (PEPP) Greek securities will continue to be bought by the ECB, but in smaller amounts than during the program.

The bets

In such an environment of uncertainty, the 2022 loan program announced on Thursday provides for securities of 12 billion euros with a reduction in cash reserves of 6.6 billion euros to repay old and expensive debt.

That is, the 1.8 billion euros of the balance of loans to the IMF and the 5.3 billion euros from the bilateral loan that Greece received from the Eurozone countries when it entered the first memorandum.

The lending program for this year should be successful four, not very easy goals:

– Greece to have continuous presence in the markets having high cash available as a last resort if market conditions lead to increased returns.

– To continue the managing operations that further reduce debt financing needs. In 2021 bond exchanges the debt was reduced by about 1.5 billion euros and the financing cost by about 450 million euros. Debt interest is expected to fall from 5.1 billion euros in 2021 to 4.7 billion euros in 2022.

– To maintain the declining trend of Greek bond yields which reached 2022 in historical lows. Apart from the smooth course of the market, the choice of the time of the issues but also the upgrades of the Greek debt that are expected from the autumn of next year will help in this.

– To make one successful entry into the emerging market of “green” bonds supported by both the European treaties and the ECB. In addition to the appropriate technical elaboration, all ministries should help in this so that the projects that will finance the bonds are appropriate.