By Lefteris Papadimas
ATHENS (Reuters) - Greece may sell one or two small bonds following the inclusion of its debt in the ECB's quantitative easing programme, to test market appetite and send a signal to investors the crisis-hit country is getting back on its feet.
Senior officials with knowledge of the matter said members of the government were split on the timing of the issues, which would mark Athens's first foray into markets since 2014. Before then, it had been cut off from the international bond market since its debt crisis flared in 2010.
"It could be one or two small size issues to test the waters and get a pricing," a senior finance ministry official told Reuters, without giving a maturity or other details.
"We want to take advantage of our bonds' inclusion in the QE and the drop in yields which is likely to follow it."
With the highest debt to GDP ratio in the euro zone at more than 175 percent of national output, and after three international bailouts, Athens is hoping its official lenders will specify debt relief measures by the end of this year.
Athens sold three- and five-year bonds in 2014 but their prices quickly tumbled and both still trade at less than face value. Greek 10-year bonds now yield more than 8 percent <GR10YT=TWEB>, well below the 19 percent level of mid-2015, but still above the 6 percent seen when Athens sold debt in 2014.
Before the ECB can start buying Greek debt as part of its QE bond purchases, Athens must first conclude the second review of its current international bailout, expected to start in October, which includes controversial labor reforms.
In turn, lenders have promised that the European Stability Mechanism, the EU's bailout fund, will outline how they will offer Greece debt relief measures.
WAITING FOR THE ESM
"The discussion with the ESM is progressing and we examine now a shift of the floating rate to a stable interest rate for a part of our debt," the official said, without providing further details.
Officials have said the ESM may present its debt relief proposals by the end of the year. The International Monetary Fund and the ECB could then prepare reports on whether Greece's debt burden is sustainable, which IMF chief Christine Lagarde told Reuters last week is not the case "at this point".
Without sustainability, the IMF has said it will not participate in the country's third bailout, worth up to 86 billion euros.
The ECB, which said last week that it could not yet specify a timeline for inclusion in its 80 billion euros a month QE programme, will also apply a sustainability test before buying Greek debt.
Without debt relief, Greece says its annual debt servicing costs will spike to 32 billion by 2022 from an already staggering 13 billion euros this year.
ESM chief Klaus Regling told a Greek newspaper on Saturday that Greece could secure short-term debt relief measures "very soon" if it implements remaining reforms agreed under its bailout programme.
He also said Greece could return to debt markets next year if it sticks to the terms of the bailout.
About 35 billion euros in Greek debt would be eligible for the ECB's purchase programme, which sets a 33 percent issuer limit on purchases. The bulk of the remaining 290 billion euros of Greek sovereign debt is held by its official lenders.
(Additional reporting by Renee Maltezou; Editing by Michele Kambas and Catherine Evans)