A Goldman Sachs report this week lists three main conditions necessary for Greece to achieve a sustainable return to the markets for its borrowing needs, as well as associated risks and difficulties.
The major NYC-based investment bank also warns that in the absence of the three conditions, markets will continue to view the country as a ” idiosyncratic market”.
Specifically, the report, issued on Tuesday reads:
“Greece is due to exit its macroeconomic adjustment programme n in August. We consider three conditions necessary for Greece to make a sustainable return to markets. First, Greece needs meaningful official sector debt relief. Even if designing such relief is both economically and politically challenging, our analysis suggests that Greek public debt is unlikely to be sustainable without it. Under plausible macroeconomic assumptions (but without debt relief), we estimate that Greece’s gross fiscal funding requirement would rapidly grow above the range the IMF identifies as necessary to minimise the chance of another crisis.
“Second, we think Greece needs to accumulate a substantial cash buffer ahead of exiting its programme. Large cash buffers boosted investor confidence and have aided market re-entry in Ireland, Portugal and Cyprus. Unlike these other programme countries, Greece will likely face tighter monetary policy in the next years. A large cash buffer could be built up if official creditors agree to disburse up to the full programme limit, in our view.
“Third, we believe the exit agreement must contain a robust system of incentives to encourage fiscal rectitude in Greece over the medium term. Relying entirely on market discipline to achieve this may not be enough. A set of fiscal conditions with enhanced monitoring in exchange for debt relief may be a palatable outcome for all parties.
“Should these three conditions be met, we believe there is a strong chance that Greek assets will re-correlate with periphery peers in the near term. In their absence, we would continue to view Greece as an idiosyncratic market sensitive to unanticipated shocks, with domestic fiscal conditions driving valuations.”
