Calm market reaction after IMF report means Athens may tap markets this week

The calm reaction of the markets to the International Monetary Fund’s stance on Greece means that the government’s plans for a trial bond issue may be revived this week.

Even though the Fund highlighted in its debt sustainability analysis that Greece needs relief, investors did not appear alarmed. The yield on the five-year Greek bond, which matures in 2019, was 3.34 percent, which is the lowest it has been since it was issued in 2014.

The IMF’s assessment appeared particularly pessimistic about the Greek economy’s prospects without serious debt restructuring from the European lenders. The Washington-based organization believes that Greece will not be able to grow by more than an average of 1 percent of GDP per year in the long-term. The IMF also has doubts that Greece can borrow from the markets at a sustainable rate. It forecasts that it will be issuing bonds with a yield of 6 percent after the end of the bailout program next year.

“One could say that it is trying to make its participation [in the program] so expensive for the Europeans so that they ask it to leave,” a Greek government official told Kathimerini.

The IMF’s assessment, though, does not appear to have shut the door on the possibility of the government issuing a bond, possibly as early as Monday. This could give Athens the chance to go to the markets again later this year, possibly after the German elections in September and before the start of the third program review.

The input from the Fund, which includes a suggestion that the lowering of the tax-free threshold should be moved forward a year to 2019, indicates that the the third review could prove a prolonged process.

According to government officials, the review will probably begin towards the end of October or in early November and will conclude when the government has implemented the prior actions and the European lenders have decided what, if any, role the IMF will have.

“It would be a mistake not to conclude the third review quickly and to allow it to drag on until the end of the program,” a European official told Kathimerini.