Greece borrows at zero cost

Scope Ratings projects a 5.2% rebound next year after a 7.8% contraction during 2020

Investors gave Greece a fresh vote of confidence during yesterday’s oneyear treasury bill auction, as the Public Debt Management Agency borrowed without interest for the first time ever in a 52-week issue.

A week after its third bond market foray during the pandemic, with the successful reopening of the 10-year note at the lowest ever interest for a Greek issue (1.187%) and despite the 15.2% annual contraction in the second quarter, investors proved willing to to buy more Greek debt. Yesterday’s auction secured a 0% interest rate against 0.25% in the previous such auction on June 10. Until yesterday the lowest interest rate secured for a 52-week T-bill had been 0.07%, in December 2019 – i.e. before the coronavirus pandemic. The PDMA will therefore raise a total of 1 billion euros, including non-competitive bids, after the €2.5 billion the bond reopening fetched a week earlier.

Despite the deep recession and the shockwaves felt across the Greek economy, investors continue to “buy Greece,” demonstrating their confidence in the country’s prospects, which are seen as strong while the impact of the crisis is viewed as temporary. This was also the message from the report issued by Scope Ratings yesterday, with which it affirmed its BB rating with a positive outlook for Greece.

The report argues that although the pandemic put a sudden stop to the Greek economic recovery, the strong response by the European Commission, the European Central Bank and the government has improved the long-term growth prospects of the country and the sustainability of the debt. The combined impact of those factors is likely to contain the economic activity’s reduction in 2020 and contribute toward a strong rebound in 2021, with Greece’s gross domestic product recovering by 5.2% next year after a 7.8% contraction this year, the ratings agency estimates.

Notably, Scope points out that Greece’s future growth will depend on the efficient absorption of resources from the Next Generation EU recovery fund, the continuation of reforms and the reduction of bad loans.