Investments: Greek bonds a safe haven – Why Greece borrows cheaper than major European economies

Greek bonds are a “safe haven” for investors against the turbulence triggered in international money markets by the negative signals sent by major European economies and the turbulent geostrategic environment of the two wars in Ukraine and the Middle East.

Greece is now borrowing cheaper than Italy and France, having significantly reduced the spread compared to Germany, while the difference in favour of Greece is also significant compared to the UK.

In five-year bonds, Greek yields of around 2.4% are now lower than those of French (2.5%) and Italian (2.8%) while they are almost at the same level as Spanish (2.4%). As for the UK, it borrows, through five-year securities, at an interest rate of over 4%. It is indicative that the yield on the German five-year bond is at 2%, so that the difference with Greek government borrowing costs has narrowed considerably.

In 10-year bonds, Greek yields are at 3.1%, Italian at 3.4% and French at 2.9%, while Spain is borrowing at a yield of 2.9% and the UK at 4.2%. The German 10-year bond yields 2.2%.

This is a complete reversal of the picture that prevailed in the money markets over the past decade, which is due to the new realities that have emerged in the European economy. While Germany and France are sending signals of stagnation or recession, the Greek economy is on a stable growth path, having secured conditions of stability in public finances both because of high primary surpluses and the downward trend in debt, which is projected to fall by 30 points as a percentage of GDP by 2027.

This picture is reflected in the reports of the rating agencies on the Greek economy, despite the challenges highlighted in them concerning geopolitical risks, the balance of payments and red loans. Moreover, as analysts and economic agents point out, the sustainability of Greek debt is an important advantage for Greek securities. Two-thirds of Greek public debt, around EUR 230 billion, is in the so-called official sector and is locked in at fixed low interest rates. At the same time, our country’s annual borrowing program does not exceed €10 billion, which is due to high primary surpluses, while the government’s cash reserves have reached a record high of €44 billion. The government’s budget has reached a record high of 44.44 billion euros.

This favourable context is the policy set by the economic staff and the ODIHR on debt management in the investment grade environment in which Greece now finds itself. An important element of this policy is the lengthening of the debt repayment period by issuing bonds with a maturity of more than one year and, at the same time, limiting the issuance of treasury bills. This objective is also served by reissuing bonds with a maturity of more than 10 years. The government’s policy of early debt repayment is also crucial. It is noteworthy that despite the retrospective debt revision undertaken by Eurostat for the period from 2020 to 2023, incorporating EUR 12.5 billion in deferred interest from loans taken out by the EFSF in 2012, the difference in the debt balance has remained at a limited level of around 2% due to early repayments, resulting in a deficit of 163.9% of GDP in 2023.