Greece’s Aging Tour Act

Greek stocks were up almost 30% through mid-year as Euro area finance ministers approved the rescue program’s EUR 8.5 billion in June for a small net infusion after official and private bondholder repayment, and committed to further debt relief to keep the IMF on board.  The ECB has Fund participation as a precondition to possible government bond buying under quantitative easing, and the Washington agency and Germany remain at odds over growth and servicing calculations guiding sustainability. The 3.5 percent primary budget surplus target is intact for the next five years, and the Tsipras government, which hailed the “landmark” agreement, must complete other moves including professional services opening for full disbursement. Economic and business sentiment readings went above 90 and the PMI entered expansion for the first time in a year on the news, as tourism revenue increased 2.5 percent from January-May in part reflecting security scares in rivals Egypt and Turkey. The National Bank of Greece, a big exchange listing, sold more Balkan assets including its Romania subsidiary, but continues to struggle with its bad mortgage portfolio after home prices halved since the crisis. Moody’s upgraded the “C” rating with a positive outlook on output and fiscal stabilization, but cautioned about high political risk and reform delay. Cyprus’ visitor numbers have also picked up as Q1 GDP growth was a post-crisis high 3.5 percent, with unemployment down to 12.5 percent. A 7-year EUR 850 million Eurobond was oversubscribed at a yield 100 basis points lower than a year ago, which will partially go to early IMF repayment.

Speculation mounted about possible reunification talks breakthrough after the UN praised progress, and the Turkish side seemed to be more amenable to compromise with preoccupations at home on economic and political threats. The MSCI Index gain tied Greece on near 5 percent growth stoked by budget stimulus, in contrast with the record of basic balance over the past decade.  Public debt is less than 30 percent of output, but domestic borrowing costs and reliance have jumped, as bank Treasury bond buyers are also pressed to use a government guarantee scheme for priority small business and infrastructure project loans. Worker social security obligations were postponed and agricultural subsidies hiked. President Erdogan has also warned the central bank against tightening despite 12% inflation in a bid to maintain popularity as hundreds of thousands of civil servants are purged and educated professionals flee fearing arrest. The main opposition party has turned to a group protest walk across the country as a mobilization tool, which may spur another crackdown. Heavy handed tactics by security forces also were condemned after a visit to Washington when presidential guards attacked Turkish embassy marchers. Alleged lobbying and efforts to extradite exiled spiritual leader Gulen by ousted Trump national security aide Flynn also provoked a backlash. Eurobond issuance was over $6 billion from January-May, and the lira has settled around 4 to the euro with the capital account in 1 percent of GDP surplus, but the current account gap persists around 4 percent despite export surges by global champions like white goods maker Arcelik. Errors and omissions almost equaled the financial inflow size in the balance of payments as money escape also strikes a blow.