ESM chief smiles on Greece

Speaking at a press conference in Berlin on Thursday, Regling said the Greek government could soon return to private capital markets for at least a part of its financing needs.

The three-year bailout package agreed between Greece and its creditors in dramatic negotiations in July has a total volume of 86 billion euros ($97 billion).

"If Greece decisively implements the package of agreed reforms, then I think it's likely that the government in Athens could regain the confidence of investors before the end of the new bailout program and be able to sell Greek sovereign bonds on private capital markets at acceptable interest costs," Regling said.

That would allow the European Stability Mechanism (ESM) - which is financially backed by eurozone member states - to reduce the volume of its lending to Greece.

In the wake of the global financial crisis and ensuing eurozone economic crisis, Spain, Portugal and Ireland all accepted bailouts from the ESM and agreed to economic reform packages in exchange. All three countries left their respective ESM bailout programs and went back to private capital markets for financing earlier than expected, Regling noted.

But Greece faces deeper structural problems than those other eurozone members, and to add to its woes, the economically floundering country is on the front lines of Europe's growing refugee inflow.

IMF participation in Greece's new bailout remains uncertain

Another way the ESM could reduce its exposure to Greece would be for the International Monetary Fund (IMF) to participate in Greece's latest bailout - the third since 2010.

The IMF has expressed reluctance, saying in mid July that Greece's heavy debt load was clearly not sustainable - the ratio of sovereign debt to GDP will soon exceed 200 percent. The New York-based global bailout fund has proposed a 30-year moratorium on any debt servicing by Athens.

However, ESM chief Klaus Regling said on Thursday that he thought the IMF would participate in the third bailout after all - and even suggested a specific volume of lending the IMF would end up contributing: 16 billion euros.

A remarkable turnaround

Greek Prime Minister Alexis Tsipras was elected in January after promising Greeks and end to the years of harsh austerity imposed on the essentially bankrupt country by its creditors since 2010.

In the ensuing half-year, he led a bitter fight against the creditors' insistence that the terms of any new bailout must continue to include rigorous public spending constraints and pro-market reforms.

In early July, Athens faced a crisis: Without getting fresh loans from its eurozone creditors, it would have been unable to make instalment payments coming due on its huge debts to those same creditors. The country would have been forced to formally default.

The insolvency of Greece's banks as well as its government would have ensued, and the country's economy, which had already shrunk by a quarter since 2010, would have collapsed entirely.

Tsipras had hoped that Greece's creditors would be so fearful of the consequences of a full-on Greek collapse and a Greek exit ("Grexit") from the eurozone that they would, in the end, offer concessions including some debt relief to Greece.

In the high-stakes poker game between Tsipras and eurozone creditors, the creditors didn't blink. On July 13, the Greek side caved, accepting a set of terms for the country's third bailout that were harsher than any previous terms offered.

Since then, in a remarkable turnaround, Tsipras has apparently decided to swallow the bitter pills of reform and austerity demanded of Greece by the eurozone. He has vigorously led efforts to push the necessary legislation through the Greek parliament - over the opposition of many members of his own governing party, Syriza.

A strong leader seeks a new mandate

That opposition was so fierce that Syriza, a coalition of several leftist parties and factions, has fractured. Some Syriza parliamentarians who reject the terms of the third bailout, led by Energy Minister Panagiotis Lafazanis, have announced they will form a new leftist party.

Tsipras therefore resigned on August 20 and announced the country would hold new elections on September 20. He hopes to return to power with a fresh crop of parliamentarians in a reformed Syriza backing him in his drive to implement the reforms demanded by the eurozone.

Klaus Regling appears to believe in the sincerity of Tsipras' new policy line. "More reforms have been implemented under the new bailout program [which was agreed just six weeks ago] than were implemented in either of the previous programs," he said.

In contrast, previous Greek governments had promised much but delivered very little in the way of successful reforms between 2010 and Syriza's election in early 2015.

Regling said that there was now a "moment of uncertainty" because of the upcoming elections in Athens, but "on the whole, one can be optimistic."

nz/hg (Reuters, dpa)