Regling to ERT: Possible for Greece to return to markets this year if reforms continue

European Stability Mechanism (ESM) chief Klaus Regling reiterated his view that Greece could tap the markets later this year or in 2018 if it sticks to its reforms program, during an interview with public broadcaster ERT, which will be shown on Monday’s evening newscast.

“I don’t know about the exact months, but I think late this year or early next year, it may well be possible to go back to the market, if they stick to their commitment to the reform program, because markets look carefully at what is happening; is there ownership of the program, will the government continue to implement what was agreed with the Eurogroup and the ESM?” he said, responding to the possible timing of Greece’s foray into the markets.

“And if that is the case, I think it makes sense to go to the markets, also that’s the experience we have in other program countries like Portugal, Ireland, and Cyprus. They also went to the market several months before the end of their programs, which makes sense, because the countries have to see how the markets react to that, and it would not be good to wait to the very end of the program and then go at that point. So I think late this year or early next year will be a good moment to try,” he added.
Asked by ERT what ESM can help Greece is the country is unable to borrow from the markets at the end of its program, Regling said if reforms continue, “there is little soubt” that market reaction will be positive.

He said the ESM is currently very happy with the last decisions that were taken by the government, noting the progress is significant and that fiscal consolidation has been very strong. “Last year Greece already had a fiscal surplus, the agreement is that the primary surplus this year should be around 1.75% of GDP, next year 3.5%, that’s also the basis why the Eurogroup agreed on more concrete ideas about possible debt relief later next year,” he explained. “I think all this coming together, of course based on the assumption that reforms continue, I have little doubt that market reaction will be positive.”

Asked whether he is satisfied with Eurogroup decision, Regling said it is an important step which will allow Greece to service its debt, repay arrears and even built a “reserve buffer”.

“I think it was an important step to find this agreement by consensus at the Eurogroup, because after national procedures in some of our member states, it will allow us to make a significant disbursement to Greece in early July, so that the Greek government can do the debt service payments, which are substantial later in July,” he said, adding it will also allow the country to repay domestic arrears and even allow the build-up of a reserve buffer, which is important for market confidence.

“So I think this is an important step; it’s not the end of the program. As the Chairman of the Eurogroup said, we have one more year to go together in the existing program, but this was the important step that was needed now,” he noted.

Asked what message the IMF’s “in principle” participation in the Greek program sends to investors, Regling said: “I don’t think the IMF distinguishes in its policy approach between developing countries and more mature economies. So this is part of the toolkit of the IMF, who have an agreement in principle when they are waiting for more precise statements from creditors about possible debt relief. So that’s independent from the status of a country. It is something the IMF has done before; I think what is important now – it was important for the Eurogroup and it’s important for the markets – is that we are all fully in line, all four institutions (the ESM, European Commission, ECB and IMF) on the policy package.”

Commenting on what the expression “taking ownership of the program” really means, he said the phrase is indeed mentioned often and means that everybody in the government, in the wider public, should be supporting the program.

“And we see sometimes that we work very well together with finance minister Tsakalotos, but some other ministers in the cabinet sometimes question measures that have been agreed – certain privatisation measures, for instance. And that gives a signal to markets and to the wider European public that the Greek government is not fully behind the program. And that is not good for confidence,” he said.
Regling then explained on what results have the short-term measures on Greek debt have brought so far, he said several have been implemented and those that are market-related are ongoing, “because we know it takes about a year to implement them fully”.

He said the overall size of the short-term measures is clear, it will not be extended, because these are measure to reduce the interest vulnerability of the Greek economy. And there are also some measures which have already been adopted to help with debt service, like the cancellation of a certain interest surcharge. “This saves money this year for the Greek budget. So we are well advanced and over time it will reduce Greece’s debt-to-GPP ratio and gross financing needs by significant amounts. But we know it’s only one part – yesterday there was more precise discussion on possible medium-term debt relief measures, which may come at the end of the program,” he added.