Greek sovereign bonds have marked a historic achievement by closing the yield gap with France. This milestone reflects Greece’s successful fiscal reforms and economic resilience. In contrast, French bonds face pressure from rising deficits, political uncertainty, and structural challenges.
The Shift in Greek Bonds
During the eurozone debt crisis, Greece’s 10-year bonds yielded about 40 percentage points more than France’s. At that time, Greece faced a heavy debt burden, austerity measures, and the threat of a “Grexit.”
Now, after twelve years, Greece has turned its economy around. As of November 2024, Greek 10-year bonds yield below 3%, aligning with France’s OAT bonds. This change signals a significant improvement in Greece’s fiscal health compared to France’s growing concerns.
Greek Bonds: A Model of Fiscal Discipline
The improvement in Greek bonds is attributed to fiscal discipline, economic reforms, and resilience against rising interest rates. Greece is on track to surpass its primary budget surplus target, reaching 2.4% of GDP. Private consumption and investment are key drivers of this growth.
Moreover, Greece’s public debt is mostly fixed at low-interest rates, with an average maturity of 20 years. As a result, Greece is insulated from rising interest rates compared to other eurozone countries. The positive outlook also extends to the Greek banking sector, which has received Buy ratings for major banks like Eurobank, Piraeus, and Alpha Bank.
France Faces Fiscal and Political Pressure
French bonds, however, are under pressure. The yield on 10-year OATs has risen to nearly 3%, driven by fiscal challenges and political instability. Prime Minister Michel Barnier’s government faces opposition over a €60bn spending-cut proposal. Political gridlock and upcoming elections threaten to delay fiscal reforms.
Goldman Sachs analyst Alexandre Stott predicts that France’s debt-to-GDP ratio will rise to 118% by 2027, making it difficult to meet fiscal goals. The lack of political capital and fiscal space further hampers France’s ability to address structural issues.
Economic Divergence: Greece vs. France
The economic trajectories of Greece and France show stark differences. Greece’s economy is projected to grow by 2.3% in 2025, while France’s growth will slow to 0.8%. Greece’s public debt-to-GDP ratio is expected to decline, while France’s will continue to rise.
This divergence highlights the growing gap between Greece’s fiscal discipline and France’s economic challenges.