The Guardian: Greece successfully holds first bond sale since 2014, but economists say crisis isn’t over – as it happened


The news that Greece has put its toe back into the financial markets, and not seen it bitten off, helped cheer investors in Europe on Tuesdat.

All the main stock markets rallied, with Britain’s FTSE 100 ending 57 points (0.8%) higher.

The euro also gained ground today, hitting a new two-year high against the US dollar at $1.17.

Naeem Aslam of Think Market thinks the euro may head higher.

“The biggest news for the European markets which improved the sentiment among investors was Greece returning to the bond markets.

The borrowing cost was much lower purely because the risk level is not the same where it used to be. The Greek news also provided fresh tail wind for the euro which broke its 2015 resistance.

Now the route is clear and the target which everyone is looking and talking about is $1.20 against the dollar. A few robust economic readings and some hawkish comments from the ECB would simply do the job. The DAX index particularly performed well today as the result for business confidence surged to a record highs for three months straight.”

Jennifer McKeown of Capital Economics takes a more sceptical approach to today’s bond sale.

She says today’s foray into the bond market went “pretty well”, as Greece borrowed at a cheaper rate than in 2014.

The sale was well timed, she explains:

“The return to markets was timed to take advantage of the drop in borrowing costs following the resumption of Greece’s bailout earlier this month. That, in turn, was the result of reform and austerity on the part of the Greek government and signs of an economic recovery.”

However, McKeown reminds us that we have been here before. That 2014 bond sale was followed by the drama of 2015, when the left-wing Syriza government clashed with creditors and nearly took Greece out of the euro area.

Things look somewhat more promising this time around, she continues – Syriza has largely caved in to its creditors’ demands and the economy is growing again.

But a new government might fall out with Brussels, the ECB and the IMF – creating another crisis.

And even if it doesn’t, the Greek economy remains fragile – and another loan may be needed…

McKeown says:

“Banks are in a very precarious state, with deposits yet to return and non-performing loans a serious burden. And crucially, the public debt mountain remains huge, at about 180% of GDP. The Greek government might therefore struggle to finance itself even at current market borrowing costs, which remain significantly higher than the average of 1.5% interest that it now pays on its largely officially-held debt. Unless euro-zone creditors agree to much deeper debt relief than that which is now on the table, it seems fairly likely that Greece will require a fourth bailout when the current one expires next August.”

Source: The Guardian

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