Benefits of a recourse to the ESM credit line
The government may be ruling out, for the time being, a recourse to the European Stability Mechanism’s pandemic credit line, as Finance Minister Christos Staikouras has repeatedly said, but foreign analysts note such a move would improve Greece’s position and render it more attractive to investors.
Fabio Balboni, a Senior European Economist at HSBC, recently stated that “so far Greece has not been affected too negatively by the crisis from a market perspective. It recently issued a 10-year sovereign bond with a record-low coupon of 1.5%. But regaining investment grade remains key in the medium term for investor confidence, in our view, for example giving Greece access to the ECB's long-standing QE program (PSPP). The crisis, leaving Greece with a debt of 200% of GDP, could delay the prospects for regaining it. At least the credit line made available by the European Stability Mechanism, worth some 3.5 billion euros – which so far the government has shown little appetite for – could give Greece access to PSPP.”
Marko Mrsnik, Senior Director for Sovereign Ratings at S&P Global Ratings, tells Kathimerini that “given its current policy plans, the Greek government has sufficient resources to fund them without the need to seek official support. Moreover, the borrowing conditions for the government have improved significantly, especially against the background of the ECB’s policy decisions regarding the PEPP. Over the last months, the ECB’s policy action has been very effective in that respect and has substantially reduced the eurozone governments’ incentives to seek official support from the ESM.”
“However, the ESM pandemic crisis instrument stipulates no conditions for drawing on the available resources other than that they need to be used for direct and indirect health care costs related to the Covid-19 crisis. In fact, it appears to us that the ESM pandemic crisis instrument framework is much lighter than the forthcoming set of ex-ante requirements in terms of reforms in the context of the EU’s Recovery fund that is currently being negotiated and that we expect ultimately to be subscribed to by all the EU governments,” he notes.
“Overall, we view the policy actions at the eurozone and EU level so far as very supportive of Greece’s sovereign creditworthiness and an eventual government decision to tap the new ESM facility would have no rating impact,” concludes S&P’s Mrsnik.
Kathrin Muehlbronner, Moody’s Senior Vice President Sovereign Risk Group, agrees that “the ESM credit line would be supportive for the sovereigns that use it, given its very low funding cost and light conditionality. Also, we assumed that the existence of an ESM credit line could enable the ECB to activate its so-called Outright Monetary Transactions (OMT), under which it can buy unlimited quantities of a member country’s bonds in the primary market, which would further support funding costs for the respective sovereign,” she states to Kathimerini.
However she perceives the ESM line as a last resort: “It is also clear that governments would hesitate using it. We had assumed that governments would only choose to use the credit line if several decided to do so. As things stand the ECB’s quantitative easing program – the PEPP – is already ensuring favorable financing conditions for governments. As such, we expect that euro area governments will indeed treat the ESM credit line as a last resort funding option.”
