Brussels, 10/04/2014 (Agence Europe) - Alexis Tsipras, head of the Syriza coalition and the European Left Party's candidate to become the next president of the European Commission, does not share the general optimism about the success of the Greek five-year sovereign bond issuance on Wednesday.
In Brussels on Thursday, Tsipras asked what difference it made to have borrowed €2.5 billion over five years from the money markets at rates of 5%, thus giving investors €600 million in profits, because all it has done is increase Greece's debt and subsidise speculators by paying obscene interest rates. We are shooting ourselves in the foot, he added, undermining the basic argument for Greece applying for financial aid (the non-viability of its debt). Tsipras said that applying for aid was a political crime.
Athens issued €3 billion of five-year bonds on Wednesday at a rate of 4.75%, announced the Greek Finance Ministry (see EUROPE 11057), which stated in a press release: “The Hellenic Republic today announces that it has agreed to sell a 5-year bond in a principal amount of €3billion with an annual coupon of 4.75%. The transaction is expected to settle next week. Demand for the bonds was very strong. The participation of long-term investors outside Greece is expected to approach 90%”. “We will regain the quality of life that we had. And all of this has happened with the sacrifices and hard work of the Greek people”, said Greek Foreign Minister Evangelos Venizélos.
On behalf of the European Commission, Simon O'Connor, spokesman for the economic and monetary affairs commissioner, said: “Today's successful bond issuance is a first but clear step in restoring market access for Greece. In the context of a generalised improvement in euro area sovereign debt markets, it is an important sign that the Greek economy is starting to regain the confidence of investors, and reflects the positive effects of the far-reaching reforms undertaken by Greece to address the challenges it faced when it asked for financial assistance in spring 2010. However, it should also be a reason to stay the course of reforms and strengthen the recovery underway. To achieve sustained market access and for the benefit of the Greek economy and the Greek people, it is crucial to continue ensuring rigorous delivery of the fiscal targets and build a strong track record of implementing growth-enhancing structural reforms under the programme”. His optimism was shared by the president of the European Parliament, Martin Schulz, who added: “However, full success will come when Greeks start to feel improvements in their standard of living and when the unemployment rate declines significantly”. IMF Director General Christine Lagarde welcomed a “step in the right direction”.
The previous five-year bond release by Greece was in February 2010, for yields of 6.1%. Tsipras said Greek debt stood at 115% of GDP in 2010, which people said was unsustainable and the country was about to go bankrupt. He pointed out that the Greek prime minister at the time, Socialist George Papandreou, had compared the country to the Titanic, which had sent interest rates up to levels close to the ones seen on Wednesday. These days, however, people say Greece can re-finance its debt at market level, stated Tsipras with dark irony.
Tsipras says the decision to make a partial return to the money markets was bound to have been made with an eye on the European elections in a few weeks' time, especially in order to reassure the eurozone that the mantra of austerity works well. He said that in reality there was no way that Greece was anywhere near coming out of crisis because it is still hampered by its debt, which is close to 175% of GDP.
Fellow Greek Elena Papadopoulou, from the Nikos Poulantzas Institute, made similar comments, saying that the idea of a Greek success story meant that the first budget surpluses were a positive sign despite the high cost. No budget purge has ever been seen anywhere else on the scale of what has been applied in Greece. The structural efforts between 2010 and 2014 are close 11% of GDP.
The Syriza leader commented that, in order to reduce its debt, Greece would need a budget surplus of 4.5% in 2016 and close to that amount every year until 2020, in other words a surplus of €60 billion a year, which, he said, is cloud-cuckoo land.
Papadopoulou said that a good share of the Greek debt should be written off. More than three-quarters of the Greek debt, some even say 90%, is held by institutional investors. When Eurostat, the EU's statistics office, confirms the primary Greek budget surplus for 2013 (not including debt-servicing costs) on 23 April, Greece will be able to demand that the eurozone does what it promised and reduces the country's debt burden. Tsipras called for a conference to be held on the Greek debt question and for it to be reduced through a direct recapitalisation of Greek banks by the European stability mechanism.
German Finance Minister Wolfgang Schäuble stressed recently that the 2012 writedown in which private investors lost a significant amount was a “one-off”.
The European Left is calling for a three-pronged approach, with all three aspects being equally important. It was unveiled on Thursday by Yiannis Milios of the economic workgroup: a) restructuring of existing debt; b) setting up a European Fund for Social and Ecological Development; and c) targeted financing of banks by the European Central Bank at low cost as long as the banks pass on the money to companies. The important thing, argued PGE President Pierre Laurent, is to give democracy back its role by restoring respect for national sovereignty. (EL)