Greek sovereign bonds have achieved a historic milestone, closing their yield hole towards France, reflecting Greece’s fiscal reforms and financial resilience. In the meantime, French bonds face strain from political uncertainty, rising deficits, and structural financial challenges.
In the course of the darkest days of the eurozone sovereign debt disaster, Greek 10-year bonds yielded almost 40 proportion factors, or about 4,000 foundation factors, greater than France’s authorities bond, because the hellenic nation teetered getting ready to default, weighed down by a debt burden exceeding 175% of the gross home product, extreme austerity measures, and the spectre of a “Grexit.
Quick ahead twelve years, Greece has rewritten its financial narrative, with its authorities bonds narrowing the hole to France’s, marking a exceptional turnaround for the previous poster youngster of the Eurozone’s debt disaster.
As of late November, Greece’s 10-year sovereign bonds yielded under 3%, aligning with the yield on France’s OAT bonds. In impact, traders now obtain equivalent compensation for lending to Greece as they do to France.
This shift displays Greece’s fiscal renaissance and relative stability, juxtaposed with rising considerations over France’s fiscal and political trajectory.
Greek bonds: From disaster to confidence
The driving drive behind Greece’s exceptional bond market efficiency is a mix of fiscal self-discipline, financial reforms, and resilience towards excessive rates of interest.
Analysts attribute the milestone to sustained fiscal overperformance, with Greece’s major price range surplus anticipated to succeed in 2.4% of GDP this 12 months, surpassing the two.1% goal.
“The Greek economic system continues to outperform, with strong non-public consumption and funding driving progress,” mentioned Financial institution of America analyst Athanasios Vamvakidis in a latest be aware.
In response to Financial institution of America, Greece stays insulated from rising rates of interest in comparison with its eurozone friends.
Most of its public debt is held formally beneath fastened, low-interest phrases with a median maturity of 20 years, whereas non-public sector debt stays subdued following a decade of credit score contraction.
The resurgence of Greek authorities bonds (GGBs) has prolonged to the broader monetary sector. “We now have a optimistic outlook on the Greek banking sector,” added Vamvakidis, with Purchase scores on main gamers like Eurobank, Piraeus, and Alpha Financial institution.
GGBs’ tightening spreads towards German Bunds—at the moment round 70 foundation factors—mirror the market’s confidence in Greece’s fiscal well being, although geopolitical and broader market dangers may mood additional positive factors.
France faces mounting fiscal and political strain
In the meantime, French bonds have confronted headwinds, with the yield on 10-year OATs climbing to 2.945% in late November, reflecting an 81.7-basis-point premium over German Bunds. The sell-off was triggered by a confluence of fiscal challenges and political uncertainty.
Prime Minister Michel Barnier’s authorities is grappling with public backlash over a contentious €60bn spending-cut proposal, which Marine Le Pen’s Nationwide Rally opposes.
With parliamentary elections probably looming subsequent July, political stalemates danger paralysing fiscal reforms.
Goldman Sachs analyst Alexandre Stott famous the problem of lowering France’s price range deficit from 6.1% of GDP to the federal government’s 5% goal, describing it as “a tall order.” Stott added, “We anticipate the debt-to-GDP ratio to rise to 118% by 2027, given the size of the proposed consolidation and the reliance on tax will increase.”
Political fragility additional complicates France’s fiscal consolidation efforts. “The dearth of political capital and restricted fiscal headroom will seemingly constrain France’s means to deal with structural reforms within the close to time period,” Stott warned.
Greece vs. France: Structural challenges spotlight financial divergence
The contrasting trajectories of Greece and France mirror deeper structural shifts.
Greece has emerged as one among Europe’s most dynamic economies, supported by improved creditworthiness and monetary self-discipline.
France, in contrast, faces entrenched challenges corresponding to ageing demographics, excessive power prices, and stalling productiveness.
In response to Eurostat’s newest Autumn Financial Forecast, Greece’s economic system is projected to develop by 2.3% in 2025, up from 2.1% in 2024, reinforcing its place as one of many eurozone’s most dynamic performers. In contrast, France’s financial progress is anticipated to sluggish to a modest 0.8% in 2025, down from 1.1% in 2024, highlighting the challenges going through Europe’s second-largest economic system.
This divergence additionally extends to fiscal trajectories. Greece’s public debt-to-GDP ratio is forecast to say no considerably, from 153.1% in 2024 to 146.8% in 2025 and 142.7% in 2026, reflecting ongoing fiscal consolidation.
In the meantime, France’s public debt is about to rise steadily, growing from 112.7% in 2024 to 115.3% in 2025 and reaching 117.1% by 2026.