‘Greece will return to international sovereign debt markets within the first half of 2014, as had been planned’, was the official line given by the Finance Ministry when asked about the timing of the country’s much trumpeted return to borrowing from international markets for the first time in four years.
The subtext from the ministry was clear: the country is continuing its steady comeback following the long and difficult process of reforms and negotiations with the country’s lenders. However, given the ongoing Golden Dawn scandal that caused the resignation of the government’s general secretary last week, not to mention the impending European and local elections, many believe that the timing of Greece’s return to the markets is being driven far more by politics than economics.
The government is desperate for good news as the ‘Baltakos-gate’ scandal continues to dominate the headlines. The affair has sent deep tremors through the fragile coalition both over the close ties Mr Samaras’s right hand man had with neo-fascist MPs, and the allegations that Mr Samras’s ministers interfered directly with the justice system under orders from the Prime Minister himself.
The government maintains – and not altogether convincingly – that Takis Baltakos was effectively a rogue agent, acting on his own accord in meetings with Golden Dawn MPs. As such it is desperate to draw a line under the incident with the general secretary’s resignation. The announcement of a successful bond offering would help knock the story from the front-pages and change the focus of public discourse – although threats by Golden Dawn MPs that they will release further damaging recordings will undoubtedly cause Mr Samaras some disquiet.
Meanwhile German Chancellor Angela Merkel is due to visit this Friday with European elections about a month and a half away. This has led many to believe that Greece’s return to the markets will be announced this week – even as soon as tomorrow, affording both the Greek government and the German Chancellor the opportunity to announce their mutual success on Friday.
According to Kathimerini, the dominant scenario is currently that procedures for the bond offering will begin as soon as Wednesday with offers accepted on Thursday. It is expected that Greece will attempt to raise over two billion euros from investors, offering 5-year bonds in its first attempt to borrow from international markets since the country’s bailout in 2010.
The same article claims that the Baltakos affair has created a new sense of urgency for another reason: that it might shake investor confidence and cause interest rates to tick back up. While investors so far seem relatively indifferent to the scandal some fear this could change. Already Moody’s reportedly postponed an evaluation of Greece’s economic prospects due on Friday mainly because of the increase in political instability in the country.
Were the bond offering to go ahead within the week, it would certainly afford Mr Samaras and Angela Merkel (and friendly media organizations) ample opportunity to trumpet their ‘success story’. Furthermore it is reported that Angela Merkel may be bringing with her a concrete plan for the establishment of an investment fund designed to help get the Greek economy moving again.
The establishment of such a fund was agreed upon in principle in meetings with German Finance Minister Wolfgang Schauble last summer in Athens but it has yet to be created. However it is reported that Mr Schauble discussed the issue with Development Minister Kostas Chatzidakis during last week’s Eurogroup meeting, with the agreement reached that the establishment of the fund would be announced sometime before the European elections. Mr Schauble also committed that Germany would complete the work necessary for the German Bank KfW to participate in the Greek Investment Fund to the tune of 100 million euros.
Should this all come to pass this week, and short of further explosive developments in the Baltakos case, the government will certainly use the opportunity to portray itself as a ‘responsible’ power that is leading Greece out of the crisis and give it the talking points that will most likely be repeated ad nauseum in the run up to the elections.
At the same time however many are wondering just how responsible it is for Greece to borrow as much as 5 billion euros on the international markets at an interest rate expected to be around 5.0 -5.5% (the current cost of Greece’s bailout loans is less than 2%). While the government would enjoy some positive headlines in the short run, in the longer term the interest will cost the Greek taxpayer about 500 million euros – about the same, as the ‘social dividend’ from austerity being doled out by the government (also in the run up to elections).
In other words political machinations designed to favour the ruling parties rather than sound fiscal policy appear to be driving Greece international borrowing – a situation that is worryingly all too familiar.