EU debt relief plan for Greece excites Athens Stock Market investors

EU debt relief plan for Greece excites Athens Stock Market investors


By Lefteris Yallouros – Athens

The Athens Stock Exchange extended gains Wednesday and Greek 10-year yields declined 29 basis points on speculation bailout terms will be eased.

Greek stocks outperformed the rest of Europe, with the ASE Composite index jumping 2.2% after Bloomberg reported that the next bailout for Greece would include a maturity on bonds that extends to 50 years and cutting the interest rate on some previous aid by 50 basis points.

Reports in the Greek press also emerged Wednesday suggesting Athens and troika inspectors are very close to reaching an agreement that would see the latest tranche of the country’s rescue loan disbursed. Reuters also reported on Tuesday that Athens and its international lenders had largely resolved differences over a potential fiscal gap this year.

Meanwhile, Greek Finance Minister Yannis Stournaras heads to Frankfurt on Thursday, where he will meet Bundesbank and Deutsche Bank officials.

The ECB along with Europe’s Central Banks (the Bundesbank amongst them) hold Greek bonds in their portfolios that weren’t included in the PSI process. It is thought a new loan to Greece would include a deal concerning these bonds worth EUR 17.5 billion which mature in 2014 and 2015.

The shortfall in Greek financing when the current bailout package ends in December is estimated at EUR €15 billion. Despite the IMF having repeatedly called on the eurozone to write off Greek debts and the country’s government having tried to persuade EU allies that this would be a permanent and fair remedy for the ailing Greek economy, it seems debt relief will come in a form that allows doubt to remain over the sustainability of the country’s high levels of debt.

For the moment, it seems investors have found the plan to extend the maturity of loans to Athens to 50 years while also cutting the interest rate on previous aid to be reassuring that Greece has stable ground to work on in order to keep the economy safely on the recovery track.

It seems the largest risk factor for Greece as far as foreign investors are concerned is political instability and the possibility of an early election. A JP Morgan report said Greece was the best possible way investors could jump on the Eurozone recovery bandwagon while it also kept an “overweight” stance on Greek bank shares.

It also termed the possibility of an early general election a “risk factor” that, however, is no reason to panic despite any short term upheaval it may cause.