Today marks an important milestone for Greece, as the Mediterranean nation brings to an end almost a decade of external financial assistance.
However, according to some analysts, this is no more than a “symbolic” moment and that there is a lot left to do to improve the Greek economy.
Constantine Fraser, European analyst at TS Lombard believes that “both the EU and the Greeks will try to put a positive spin on the end of the bailout, but there is little to celebrate”.
What Happens Now?
Starting today (August 20) Greece will once more become a self-financing nation and ineligible to receive financial tranches – commonly known as “bailouts” – from its European creditors.
In addition, and just like every other economically healthy nation, Greece will now be able to tap global financial markets to fund its operations.
A Bit of History
- Athens first requested financial assistance back in 2010, when investors – alarmed by the country’s mounting debt – refused to continue to finance Greece.
- Since 2010, Greece has been supported by its Eurozone creditors and the IMF.
- The crisis worsened after former Finance Minister Yanis Varoufakis clashed publicly with his European counterparts.
- Greece is the last country to stop receiving a bailout following a sovereign debt crisis. Portugal, Ireland and Spain all made an economic recovery.
How Could the Markets Respond?
According to TS Lombard’s Fraser, “on Monday, there might be some positive movements in Greek bond markets, responding to a feelgood factor on the day, but I’d expect most of the news to already be priced-in by now”.
Greece should not need any external financial assistance in the short-term, as the nation has ended it’s third rescue with a “massive cash buffer” of 24.1 billion euros. This buffer should be sufficient to cover all sovereign requirements for the next two years.
According to Carsten Hesse, European economist at Berenberg, “Greece has built up a massive cash buffer, so they won’t have to tap bond markets, in theory, for roughly two years. So the end of the bailout programme on Monday should not have an impact on the bond yields”.
Even so, Hesse warns that external events could have a negative impact on Greek bonds on Monday.
In the aftermath of the turmoil in Turkey Greek bonds suffered “a little bit of contagion last week,” Hesse said. “But luckily, Greek banks have very, very little exposure to Turkey and trade between Turkey and Greece is also little. So, in theory, there should not be an impact.
“The threat is more politically. If a larger part of the 3.5 million Syrians would come to Greece due to a potential massive crisis in Turkey, it would be a big political problem for Greece and could impact the standing of Prime Minister Alexis Tsipras.”
This article is for educational and informative purposes only and should not be considered as investment or trading advice.