Christmas debt boons for Greece but risks remain

Greece opened its Christmas stockings early this year with an unexpected debt rating boon and European Central Bank support but analysts warn that risks remain in the troubled nation's fragile fiscal recovery. A day after ratings agency Standard and Poor's gave Greece's sovereign debt a six-notch ratings hike, the ECB on Wednesday said it would again accept Greek bonds as collateral for central bank loans. This followed the release of a first batch of European loans on Monday that broke a six-month freeze in Greece's bailout payments brought about by reform delays and a protracted electoral campaign. Finance Minister Yannis Stournaras on Wednesday hailed the S&P upgrade in parliament, which he said was "unexpected" but welcome nonetheless, while the Athens stock exchange jumped by 4.81 points with banks gaining 9.65 percent. "The six-point upgrade by Standard and Poor's creates feelings of confidence. We had not expected it," Stournaras said. "It is another reward, a first step of recognition for the efforts and sacrifices of the Greek people," he added. Greece on Wednesday drew another 16 billion euros in European loans after a decision by EU leaders last week to unblock a total of 49.1 billion euros from the country's outstanding financial assistance package by early next year in return for a new austerity deal in Athens. Another 11.3 billion is expected by the end of the week. The money is intended to help the government repay some nine billion euros owed to state suppliers in Greece and abroad, complete a sovereign debt buy-back and recapitalise Greek banks that took a hit in a debt write-down in the spring. "The (EU) agreement provides quite a significant window of opportunity to the country and the government to focus on strategies to stabilise the domestic economy," said Platon Monokroussos, head of financial markets research with Greece's third largest lender Eurobank. "Of course risks remain but overall it appears that there is a notable shift in market perceptions over fiscal solvency and the country's standing within the common monetary union," he told AFP. "Despite the austerity, Greece has a chance now," Monokroussos said. In another sign of returning stability, bank deposits also look to be heading back to Greece after bank-customer panic six months ago, when an anti-austerity left-wing party nearly won the general election. "In September and October we had returns of one billion euros apiece, and there is talk of another 700 million euros in November," a European official said. "There is clearly a wave of deposit returns, mainly involving money that people had taken out and put in strongboxes or bank deposit boxes during the electoral campaign," he added. To restore the flow of loans, Greece had to commit to another 18 billion euros of savings by 2016 on top of cuts to pensions and salaries over the last two years. The government is currently debating in parliament a bill to broaden the tax base and increase revenue by two billion euros next year. But the ruling coalition of conservatives, socialists and moderate leftists has already lost a sizeable part of its parliamentary majority as it pushed through the tough reforms, just six months into its term. The European Commission on Monday warned that "very large" implementation risks to Greece's fiscal overhaul remained. "The key risks concern the overall policy implementation, given that the coalition supporting the government appears fragile and some components of the programme face political resistance, despite the determination of the government," it said. The IIF international bank lobby, which helped Greece push forward its debt repayments earlier this year, has highlighted concerns caused by the Greek economy's rapid contraction that is only set to ease up next year. "With real GDP likely to decline another 4-5 percent next year after falling 6 percent this year, and further austerity testing social cohesion, risks to the EU-IMF program will remain substantial," the Institute of International Finance said on Tuesday. Hundreds of civil servants protested in Athens on Wednesday against the new austerity measures as part of a 24-hour strike called by unions that paralysed public services and disrupted transport. In a message to Greece's EU-IMF creditors that have demanded sacrifice by Greeks, a group of protesters held up rows of underpants on a clothes line that spelled out "You can take these too."