Troika Warns Against Greek Market Return



The Troika is worried Greece will throw money around again like there's no tomorrow
The Troika is worried Greece will throw money around again like there’s no tomorrow

With Prime Minister Antonis Samaras touting what he says is a looming economic recovery this year, Greece’s international lenders say he should forget about returning to the markets the country has been locked out of for four years because they fear complacency will set in and he will ease up on critical reforms.

Also worrying the Troika of the European Union-International Monetary Fund-European Central Bank is worries that when $325 billion in two bailouts run out this year that if Greece is able to borrow again on its own it will slip back into the same wild spending habits that destroyed its economy, the news agency Bloomberg said, citing unidentified sources.

The warning comes as Greece is locked in stalled six-month negotiations over unfinished reforms and with Samaras, who had bent to virtually every Troika demand, getting his back up about more tough conditions with his New Democracy Conservatives having slipped behind the major opposition Coalition of the Radical Left (SYRIZA) in polls ahead of critical May elections for Greek municipalities and the European Parliament.

Greece surrendered control of its economic and budget policy to Troika when it was forced to seek emergency funding in 2010 as its finances spiraled out of control. With the ECB’s government-debt assurances fueling a rally across euro area sovereigns, Samaras says he intends to tap markets again, marking the end of the Greek bailout which triggered the European debt crisis.

“The Troika is realizing now that when Greece had a 10 percent deficit and they had all the negotiating power, they were too focused on austerity instead of structural reforms,” said Michael Michaelides, a rates strategist at Royal Bank of Scotland Group  in London told Bloomberg. “A market return would mean that some of the tougher reforms would never be enacted.”

Greece still hasn’t implemented some 153 reforms identified by the Paris-based Organisation for Economic Co-Operation and Development (OECD) and the Troika is is worried that if they remain unfulfilled and Greece goes back to the markets that the economy could go under again.

Samaras has said Greece will have a primary surplus of 1.5 billion euros and he intends to return 70 percent of that to those most affected by pay cuts, tax hikes and slashed pensions in what critics said is a pre-election attempt to appease them and stop the slide in unpopularity of his coalition, which also includes the fast-fading PASOK Socialists.

If the economy does come out of a seven-year recession that has seen record unemployment and deep poverty, with a primary surplus and current account surplus, Greece has enough cash to pay public wages and pensions and would have to borrow only to meet repayments on the country’s staggering debt of 321 billion euros ($445 billion).

And returning to the markets, even if possible, might not be easy because investors in 2011 were burned by a previous Greek government led by PASOK which stiffed them and bond holders with 74 percent losses over 30-year repayments in a so-called “haircut.”

Greece now wants the Troika to accept the same conditions, which would mean that taxpayers in the other 17 countries would have to pick up the tab for 40 years of wild over spending by alternating PASOK and New Democracy administrations that hired hundreds of thousands of needless workers in return for votes.

Troika officials are concerned that as they lose leverage over the Greek government the country will slip back into the errors which sparked the European debt crisis, the officials from Greece and the EU said. In that scenario, euro member states may refuse another bailout, they said.

The only way to ensure Greece pushes through the changes needed to fix its economy is with a new loan, attached to strict conditions of fiscal prudence, the European official said.

Samaras has rejected a third bailout because it would come with more of the austerity measures that have taxpayers up in arms against his administration.

The official cited Greece’s failure to enact all the agreed public and tax administration changes, as well as the country’s reluctance to comply with measures prescribed to free up the markets for goods and services, as examples of the government’s approach.

Greece also has failed to go after tax cheats who owe some 70 billion euros ($97.13) billion and let the country’s rich oligarchy largely escape sacrifice or to pay its share of taxes.

Interest payments on loans have already decreased from 7.8 percent of Greek Gross Domestic Product (GDP) in 2011, to 3.3 percent of GDP in 2013, Deputy Finance Minister Christos Staikouras said earlier this month, referring to successive rounds of interest rate cuts and extensions of maturities for the bailout funds. The average maturity of Greek government debt is now 17 years and the country pays about 2 percent in interest on its bailout loans, Staikouras said.

Investors searching for returns with interest rates at record lows have fueled a rally in Greek government bonds, which have outperformed any other sovereign security tracked by Bloomberg this year. “Ideally, we would like to have no new loans from our European partners,” Finance Minister Yannis Stournaras said on January 9.


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