The Greek government’s intention
to access the markets in April was known for some time now. Armed with an
improved fiscal and current account position the Greek government planned and
executed a market comeback. At the same
time the markets have reached new levels of irrational exuberance especially in
the peripheral countries fuelled by rumours that the ECB is going to start QE
possibly before the summer ends. Greece only had to blink to borrow 3billion at
the very competitive 4.95%pa.
Greece stopped accessing market
funding because it could not afford to pay the high interest demanded, and the absence
continued even after the PSI restructuring which betrays the total failure of
the exercise. It is also true that Greece cannot afford to refinance a
significant part of its debt with 3 or 4 per cent spread over the money it gets
from the bailout loans. In other words, it was done more for marketing and
public relations reasons rather than as a prudent liability exercise. And that
is not necessarily bad; marketing and PR is part of liability debt exercise if
we are to believe the FED and the ECB. Greece has also lost its prerogative to
issue under Greek law probably for many years. All borrowings are done under
English law to safeguard investors from future PSI reincarnations which also
serves as a warning to other investors buying European government bonds issued
under domestic laws.
There is no doubt that the Greek
government scored a victory. That victory however, is mitigated by the fact
that Greece never bothered to explain to the investors and also to the Greek
taxpayers why and for what they needed the 3bln. It would be nice especially in
a European democratic country to justify the reasons for this extra borrowing.
For example, are there any urgent social needs that need to be covered
immediately? Does the state consider child poverty which is on the increase a
major problem and it does not mind paying 4.95% to solve it? Are there any
projects to combat unemployment that need financing, or, investment projects
that would yield a higher rate of return?
As everyone knows all of the
above are real urgent needs, but the reason the government chose to borrow 3bln
are more connected with public relations and the forthcoming European
elections. The Greek government needs to show that the economy is on the up and
that confidence is returning. The same goes for Greece’s European creditors.
They too need to show to their taxpayers and electorates that their money was
well spend.
However, public relation
illusions are short lived and usually expensive. In the long run it is cheaper
to solve the problem rather than continuing the illusion. The European taxpayer
does not stand to gain from this in the future.
If the intention of the Greek
government is to turn the page, it better change the book on how it runs its
debts. Prudency, transparency and accountability were not synonymous in the
past with Greek debt liability policy but should become the gospel policy of
Greece.
Few simple measures are needed in
order to reassure the markets but most importantly the taxpayers that bad past
behaviour would not be repeated. Firstly, a debt ceiling needs to be imposed
and breaching this would require a higher parliamentary majority of 2/3. Secondly
the parliament needs to approve every single borrowing exercise independently.
Thirdly, every euro borrowed needs to have an explanation attached on how it is
going to be used. No more for the “general needs of the government”. In the
past, borrowing was done in lieu of collecting taxes and for politicians to
avoid taking the hard decisions. Lastly, there needs to be an audit at the end
of the year with automatic and irrevocable remedial actions or penalties. In
other words, practice transparency, accountability and audit.
There is no doubt
that Greece needs to access to markets but opportunism should not be the driving
factor. Greece needs to borrow for growth not for votes. Over-indebtness
concerns all European taxpayers not just the Greek ones. Because when the time
comes they would foot the bill.
