Domestic Bonds

The runaway 10-year government bond and why the new crisis doesn’t threaten to derail Greece

The national economy is in a strong position, with its budget, despite many extraordinary advantages, under control and the government fully understanding the importance of budgetary stability.

Memories of the debt crisis of 2010, when our country was in the eye of the storm, are revived by the runaway yields of Greek government bonds, in the aftermath of the The ECB’s decision put an end to the bond-buying program, the impending hike in key interest rates and the general deterioration of international economic conditions.

The yield on the 10-year government bond expanded the previous days to 4.7% of 0.53% a few months ago, when Italian government securities were also under heavy pressure, with the Italian 10-year bond reaching 4.5%a development raising fears of a new debt crisis in Europe.

The surge in bond yields on debt held by Southern European countries has forced the ECB Wednesday to hold an extraordinary meeting of the Board of Governors to address market concerns, a meeting that yielded no tangible results. The immediate measures taken by the ECBhowever, shows that even ECB “hawks” want to help relieve pressure on the periphery, recognizing that if the current turmoil leads to a crisis, the interest rate hike they want will not materialize.

There is no doubt that the international situation has deteriorated, which is putting pressure on Greek economy but also to link the rise in the 10-year bond yield today to the situation of Greece in 2010 is superficial and wrong. The national economy is in a strong position, with its budget, despite many extraordinary advantages, under control and the government fully understanding the importance of budgetary stability.

In addition, the national economy has significant growth potential over the two-year period. 2022 – 2023. Growth will significantly exceed the euro area average as the pressures exerted on European economies by the current crisis are stronger. Thus, the current crisis, fueled by geopolitical developments, the energy crisis and inflationary pressures, is to some extent helping Greece’s effort to catch up quickly with the euro zone.

This does not negate the new challenges that are being created, the risk of new PNP in the banking system and dangerous politico-economic complications, if there is no de-escalation of inflationary pressures in 2023. There is also a need for the government to speed up reforms, especially within the state, such as the judiciary, public administration and education.

Three points make the difference

According to bank executives and economists, three main points separate the country from the 2010 debt crisis, fueling optimism about the country’s course:

1. Strong economic growth. The Greek economy will experience strong growth rates in 2022, reaching more than double the eurozone average. In the first quarter, growth reached an impressive level +7%while this year domestic GDP is expected to grow by nearly +6%compared to +2.4% in the euro zone, driven by two powerful sources of growth. The first is the sustained course of tourism, with revenues reaching at least 17 billion euros this year (approaching 2019 levels) compared to 10 billion euros in 2021 – while according to estimates the bar is even higher. The second driver is the impetus given by the return of the national economy to normality and the growth of private consumption.

2. Particularly favorable debt profile, low refinancing needs. Unlike 2010, when the Greek debt was wholly owned by private investors and refinancing needs Greece were very important, the situation today is radically different. More … than 70% of public debt is held by the official sector and is not on the market. Today, Greek debt has an average maturity of 20 years with a weighted average service cost of 1.4%, which means that it is protected against interest rate increases. In addition, annual refinancing needs are very low.

3. Regain credibility, return to normalcy. Greece has now healed the wounds of Greek stats and unreliability, with the Mitsotakis government having managed to lead the country to the other side, gaining the confidence of the international community of investors. It should be noted that the current crisis is not linked to Greece but is the result of more general developments. The above data on Greece and the country’s outlook contrasts sharply with the picture reflected in both the bond and equity markets. Banking sources believe that through the pressures on Greek and mainly Italian bonds, traders are testing the ECB on when it will intervene in interest rates. Regarding the stock market, they note that the turmoil reflects the broader turmoil in the markets and not the Greek reality.

What Alexis Patelis and Ilias Lekkos tell Business Daily

The Head of Economic Cabinet of the Prime Minister, Alexis Patelispoints out to BD: “In the long term, low inflation ensures the purchasing power of our weakest fellow citizens. Economic theory says that controlling inflation – which we all want – requires raising interest rates. As announced speak European Central Bank, it will be preloaded, starting next month. Greek public debt has a long-term horizon – more than 20 years on average – and at an interest rate that has largely been locked in by swaps. The private sector has not participated in the unbridled credit expansion seen in other countries. However, money in Greece will become more expensive and interest rates on floating loans will rise.”

Ηλίας λεκός, επικεφαλής οικονομικής ανάλυσης και επενδυτικής στρατηγικής, τράπεζα πειραιώ

Ilias Lekkos, Head of Economic Analysis and Investment Strategy, Piraeus Bank Groupsaid: “The Greek economy is expected to achieve a particularly high growth rate in 2022 despite the challenges posed by the international geopolitical environment, the energy crisis and inflationary pressures. The national economy is expected to grow this year by nearly +6%compared to approximately +2.4% for member countries of the euro zone. Despite the uncertainties of the war, the Greek economy, thanks to the acceleration of investments with the RRF, could achieve an even better performance in 2023 compared to the countries of the euro zone by further improving the macroeconomic situation of the country, in particular on the side of debt to GDP. In addition to high growth rates, Greece has an excellent debt profile and regained credibility, characteristics that make the country extremely resilient to the current bond market turmoil.”