It’s been more than three years since Greece sold its comeback €3bn five year bond, a deal that many took as a sign that the worst of the country’s economic problems were behind it. But just under two years ago, the country agreed to a third bail-out package. Next month, the second of its comeback deals — a €1.5bn three year sold in July 2014 — is set to redeem, with no issuance having followed it.
The picture for the troubled country looks somewhat better now, as demonstrated by Moody’s upgrading the country’s credit rating last Friday to Caa2 from Caa3 and shifting its outlook from negative to positive.
Moody’s highlighted three reasons for the move: the conclusion of the second review under Greece’s adjustment programme and subsequent release of €8.5bn in assistance cash; an improved fiscal outlook; and “tentative signs of the economy stabilising”.
Moody’s also believes that there is an improving chance of Greece successfully completing its third adjustment programme, “which in turn raises the likelihood of further debt relief”.
But there's the rub. Greece has already had some relief in the form of short term measures earlier this year that cut the country’s interest rate risk and eased its repayment schedule. For the country to really get back on its feet, however, there needs to be something more meaningful — certainly before the country returns to the bond markets, which its government has said it hopes to do this year.
Greece’s debt to GDP ratio was 179.0% in 2016, according to Eurostat. That’s little changed from the 179.7% it was at in 2014, the year it made its bond market comeback.
But that level of debt is simply unworkable in the long term for a country struggling after years of crisis and austerity — and without the ability to devalue its currency.
Greece has made big strides over the last few years and for that, its people, government and all involved in its assistance programme deserve some credit.
But until that 179% ratio is brought down, talk of a bond market return should be on hold. After all, nobody wants a second comeback to be followed by a fourth assistance programme.