Greece returned to the international bond markets last week with its first issuance since 2014, which at the time was its only issuance since the European Sovereign Crisis when the vast bulk of its debt was ‘restructured’. This return to the market is another small step in the long road back to financial health. Around half of the issuance was bought in exchange for existing debt but some new investors subscribed to the deal, some at least likely to be from outside Greece.
In a small way this should help the Greek banking system by injecting funds from outside Greece into the country, and allowing the amount borrowed under the Emergency Liquidity Assistance (ELA) programme to continue to reduce – something that is probably necessary before the 2015 capital controls are removed. Since 2015, many changes have occurred in Greece and it may surprise some that the outlook is looking much more favourable. Economic growth has turned positive, helped by firm Eurozone economic performance. Unemployment levels, although very high, have been falling since 2014. The fiscal position also looks better, with Greece recording a primary surplus in 2016.
The outstanding level of total government debt is still enormously high and is almost universally agreed as being unstainable in the long term. That said, in view of these more recent positive developments, Greece has been upgraded by rating agencies Standard & Poor’s and Moody’s over the last 12 months. Still rated at a worrisome B- at best, but at least going in the right direction. For this reason Greece offered a credit premium of near 5% over German debt in its recent issuance. This compares with the 1.3% spread that Portugal offers, the next ‘worst’ of the major countries that are active in the debt markets.
The credit trends are not isolated in Greece. Two of the other former ‘PIIGS’ countries, Ireland and Spain, have also seen upgrades in their credit ratings in recent years, and while Portugal’s rating has remained stable, Fitch has upgraded its outlook to Positive. Only Italy has seen a downgrade recently – but even there the outlook looks, for the short term, reasonably sanguine. The revival in economic growth and the long-awaited action regarding the banking system should mean stability for the foreseeable future. The good news can continue.