Here we go again.
Greek bonds are back under pressure today, with its two-year yields shooting up above 10 per cent amid a fresh worsening of relations between its major creditors in Brussels and the International Monetary Fund.
After an already tumultuous week for Greece’s bailout talks, the head of the eurozone’s bailout fund has heaped on criticism of the IMF, dismissing its claims that the country needs major debt relief to secure its future economic prosperity.
Writing in the Financial Times today, Klaus Regling of the European Stability Mechanism, said there was “no cause for alarm” over the country’s 180 per cent of GDP debt pile, which the IMF has warned could rise to “explosive” levels without bold restructuring.
Questioning the IMF’s latest debt sustainability analysis, Mr Regling argues the ESM provides Greece with exceptionally favourable debt servicing costs, writing:
The solution for Greece lies not in additional debt relief, but in the government implementing reforms so as to avoid delays in the issuing of the next tranche of the ESM loan.
The IMF’s shorter time horizon is not appropriate. Also, the fund ignores the pledge made by Greece’s eurozone partners.
The ESM is Athens single largest creditor, comprising of the financial contributions of the bloc’s 18 other member states.
Although nearly 80 per cent of Greece’s outstanding debt is held by its creditors in the EU and IMF, rising yields reflect souring investor sentiment towards Athens’ bailout, hampering Syriza’s claims it will be able to return to finance itself on the debt markets by the end of the year.
Greece’s two-year yields have gained 64 basis points today, taking them to the highest level since June 2016 at 10.1 per cent.
Mr Regling added that concessionary creditor terms means “the actual cost to Greece of servicing its debt is among the lowest in Europe and will remain so for a long time”.
Athens has also lashed out at a grim, 91-page assessment of the Greek economy released by the IMF earlier this week, calling it a “misleading” account of the left-wing government’s reform efforts.
The IMF has long warned that a 3.5 per cent primary surplus target – which the EU wants Greece to maintain for a decade until 2028 – would impose unnecessary pain on the economy and weigh down on long term growth.
The target cannot be sustained without further promises of belt-tightening from the Greek government, says the IMF – demands which Syriza strongly opposes.
Should they fail to narrow their differences, the IMF could withdraw its promise of financial support for the €86bn bailout. A decision from the Fund’s executive board is due later this month.
Greece faces a €7bn summer debt repayments crunch in July – obligations it will not be able to meet unless it secures a fresh release of bailout cash.
Chart via Bloomberg