Greek sovereign bonds have closed the yield gap with France, marking a historic achievement. This reflects Greece’s successful fiscal reforms and economic resilience. On the other hand, French bonds face pressure from rising deficits, political uncertainty, and structural economic challenges.
A Remarkable Economic Turnaround
In 2012, Greek 10-year bonds yielded nearly 40 percentage points more than France’s, as Greece was on the brink of default. Back then, the country struggled with a debt burden exceeding 175% of GDP, severe austerity, and fears of leaving the eurozone. Twelve years later, Greece has rewritten its economic story. As of November 2024, Greece’s 10-year bond yields fell below 3%, aligning with France’s OAT bonds. Investors now receive the same returns when lending to Greece or France.
Factors Driving Greece’s Bond Market Success
Greece’s strong performance stems from fiscal discipline, economic reforms, and resilience against rising interest rates. The country’s primary budget surplus is expected to reach 2.4% of GDP this year, surpassing the target of 2.1%. Private consumption and investment continue to drive growth, according to Bank of America. Greece’s public debt is largely under low-interest, long-term agreements, insulating it from interest rate hikes. The Greek banking sector has also benefited, with a positive outlook and Buy ratings for banks like Eurobank, Piraeus, and Alpha Bank.
Challenges Facing French Bonds
French bonds, in contrast, have faced mounting challenges. The yield on 10-year OATs reached 2.945% in November 2024, reflecting an 81.7-basis-point premium over German Bunds. This sell-off stems from France’s fiscal difficulties and political uncertainty. Prime Minister Michel Barnier’s government faces opposition over a €60bn spending cut proposal, with the National Rally opposing the plan. Upcoming parliamentary elections may lead to political gridlock, complicating fiscal reforms.
Goldman Sachs analyst Alexandre Stott pointed out the difficulty of reducing France’s budget deficit. France’s debt-to-GDP ratio is projected to rise to 118% by 2027 due to the reliance on tax increases. Political fragility further hinders fiscal consolidation efforts.
Economic Divergence: Greece vs. France
The contrasting paths of Greece and France highlight deeper structural shifts. Greece is now one of Europe’s fastest-growing economies, with improved creditworthiness and fiscal discipline. By 2025, Greece’s economy is expected to grow by 2.3%, up from 2.1% in 2024. Meanwhile, France’s growth is projected to slow to 0.8% in 2025, down from 1.1% in 2024. Greece’s public debt-to-GDP ratio is forecast to decline from 153.1% in 2024 to 142.7% by 2026, while France’s debt is set to rise from 112.7% to 117.1% over the same period.