“In 2014 Greece will return to the international money markets. It will make its way back to normalcy and will not need new loans or a new memorandum.” So said Prime Minister Antonis Samaras in his recent New Year’s address to the country. Yet only a few days later this prediction has been directly contradicted by Myles Bradshaw, executive vice president and portfolio manager of the London office of the multinational investment firm Pimco.
Interviewed by the German daily Sueddeutsche Zeitung, Mr Bradshaw is reported as having told the newspaper, “We do not believe that Greece will be in a position this year to borrow money from the international markets.”
This is, of course, far from the first time that official predictions of when Greece will emerge from the crisis have been proven to be over-optimistic, as this recent TPPi story shows. However the public contradiction of Mr Samaras by the Pimco VP will come as a serious blow to the Prime Minister and his government’s attempts to reassure the public that Greece is turning the corner and that no new memorandum is on the horizon. The investment firm’s stance carries particular weight as it is the largest single investor in government bonds in the world, managing portfolios worth a total of 1.5 trillion euros, with a large proportion invested in government debt.
“The interest rates on Greek 9-year bonds are currently around 8%”, Mr Bradshaw told the newspaper. “If the country takes large loans under these conditions then the overall burden from interest rates will be much greater than if Greece continues to borrow from the European Stability Mechanism (ESM).”
In its reporting, Suddeutsche Zeitung provides an example to back up this stance: ESM loans to Athens have an interest rate of about 2%. In 2013 the country paid about 5.5 billion euros in interest payments. The Greek finance ministry estimates that Athens can afford to pay about 7 or 8 billion on interest payments but this is nowhere near enough to cover the cost of borrowing the money Athens needs from private investors at an 8% interest rate.
The view that Greece will require another emergency loan agreement is shared by Marcel Fratzscher, president of the German Institute for Economic Research who believes that a new Memorandum of Understanding (MoU) will be needed sometime in 2015. “The debt and as a result the amount needed to cover interest payments is huge,” he is reported as having told the DPA German news agency.
“It is the reason that Athens cannot fund its debt on the free market. The promises made by the Greek prime minister have more to do with political motives, or it may be a tactic to increase the pressure on Greece’s lenders in order for them to agree to a debt restructuring. In this way he hopes to achieve an extension for the repayment of the loans and for a reduction in the interest rates.”
Only in this event would the debt become sustainable and Athens would be able to borrow money on the international markets as it hopes to according to Mr Fratzscher.
Source: Deutsche Welle Greece (link in Greek)