Greece borrows for less than France and Italy

While borrowing costs in Western Europe are soaring, Greece keeps its cost of borrowing contained, for a multitude of reasons.

On Monday, borrowing costs in Europe soared to new multi-year highs, with the sell-off in government bonds intensifying after a new rise in oil prices. This increases concerns about inflation and government finances, keeping the door wide open to interest rate hikes. Greece was the exception, with Greek government bonds once again appearing resilient to the wave of liquidations carried out by investors.

A significant factor for the bond sell-off was the comments by Fed Chairman Kevin Worth that interest rates may need to rise if inflation remains above target, fueling speculation for a US rate action later this month, just as markets see two more interest rate hikes from the European Central Bank by the end of the year, the first coming next week.

A “bright exception” to the sell-off were Greek bonds, with the 10-year yield stabilizing at 3.93%, close to the levels of last March and considerably lower than those of Italy and France. The spread against Germany is at 64 basis points and at the levels it was at before the outbreak of the war in the Middle East in end-February.

Market players point out that the resilience shown by Greek bonds is not accidental and is due to specific, very important factors.

Firstly, the very good management of the Greek debt, with the increase in early repayments by €4.7 billion this year (and to €12.84 billion in total, from €8.79 billion initially calculated) constituting “the biggest news of the summer” for the country.

Secondly, the favorable debt profile – with the average duration reaching 18 years compared to 7.6 years for the rest of the countries of the eurozone periphery.

Thirdly, the high cash reserves (€30 billion at the end of August) that provide flexibility, resilience to market volatility and mitigated refinancing risks in the medium term.

Fourthly, the strengthened fundamentals of the economy and the strong fiscal performance with the recording of primary surpluses and a continuous reduction in the debt-to-GDP ratio, which is expected to be below that of Italy already this year.

And finally, on Greece’s big “trump card” which is the almost zero further borrowing needs for this year, at a time when in September alone, other eurozone countries (France, Germany, Spain, Ireland, Belgium, etc.) will need to raise €120 billion from the markets.

The Public Debt Management Agency has made sure that the borrowing front was covered very early in the year. Greece has already raised 95% of its needs for this year from the markets, resulting in no need for another syndicated issuance (except for one or two auctions for €200-300 million). Therefore, any market turmoil will have a negligible impact on this country.

Source: Ekathimerini