Greece Macro Monitor (16 Oct 2014)
Making sense out of the latest market upheaval
Greek asset markets declined sharply amid heightened uncertainty over global growth prospects, domestic political jitters and expectations for Greece’s early exit from the IMF program
Such an exit would require the maintenance of market access by the Greek State, so as to facilitate the coverage of the country’s projected funding gap on a multi-year basis. However, recent market action suggests that international investors still need strong assurances as to the country’s commitment to fiscal discipline and the agreed structural reforms agenda.
A swift clarification of the terms of a new mechanism (with or without the Fund’s participation) to replace the credibility premium enjoyed by the Greek program due to the IMF involvement could go a long way towards soothing prevailing market worries, especially given persisting domestic political jitters ahead of the presidential election in early 2015.
As per a number of market sources, that mechanism could potentially take the form of a precautionary credit line (e.g. an ESM-supported Enhanced Conditions Credit Line) coming with some underling conditionality.
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