February’s presidential election is set to be a major test for the Greek government on top of the current review of the country’s bailout programme. The ruling coalition has insufficient parliamentary support to elect a president directly, so there is a risk that a premature general election will have to be called. If Greece parts ways with the IMF, as the government has been suggesting, it will need to find around EUR 22bn of funds to meet its obligations in 2015-16. Even if Greece cannot tap the market, there are various funding options open to it. For example, it could get an ESM credit line or use some of its bank recapitalisation funds. An EU credit line would come with better funding terms than Greece’s IMF loans and would probably make the country eligible for ECB covered bond and ABS purchases.
Though it is too early to tell, parting ways with the IMF could be seen domestically as asuccess for the government, helping to improve public sentiment and reduce political risk. The recent stress in the Greek financial markets, amid domestic political risk and government talk of an early exit from the IMF bailout programme, has been further fuelled by tensions in the global financial markets and a lack of liquidity in the Greek government bond market (Chart 1). What’s more, a number of major events between now and the end of the year, which are likely to determine the shape of the country’s political arena and the status of its rescue programme, suggest the market unrest is likely to persist for some time.
