Greece officially exits the bailout program. The Hellenic country has put an end to eight years of financial bailout that has meant 386 billion Euros in loans, an increase in its debt in order to be able to face its creditors, a restructuring of its debt, and a period of policies of cuts for the country. But what can investors expect from Greece now?
The country’s macroeconomic data began to be positive in 2016 and, thanks to the good performance of its exports, last year its economy grew by 1.4%. "Greek politics and economy have stabilized in recent years. There are still many structural challenges, but both sides want to achieve a positive outcome and move away from the era of official assistance programs in the peripheral Euro-zone," commented sources from Deutsche Bank’s analysis department.
In fact, Greece has experienced positive growth every quarter since 2017, as well as an increase in confidence in its economy. "From a structural perspective, the improvement of the economy has not translated into an increase in domestic demand, which has fallen during these years. Wages fell in the last decade, but prices did not adjust so much, which pushed domestic demand down but did not really improve competitiveness. This suggests that market reforms will be as, or more important than, labor market reforms in the coming years," comment those same sources from the German banking institution.
The Greek country still faces many challenges along the way. "Greece has to start considering regulated access to the bond market, a standardization illustrated by the sharp drop in interest rates in recent years. It should be noted that although the financing needs for 2022 are extremely low, the debt’s long-term sustainability is as yet unsecured," explains Guillaume Rigeade, Fund Manager at Edmond de Rothschild Asset Management.
The debt burden remains close to 190% of GDP and, starting in 2035, Greece's financing needs will be once again substantial. According to Rigeade, this explains why "interest rates for Greek bonds continue to be the highest offered by sovereign debt in the Euro-zone."
According to Joseph Mouawad, Manager at Carmignac, more than the exit itself, what matters most is the situation in which Greece exits the bail-out program. "Greece has a large primary surplus without large debt repayments in the short and medium term, a large cash cushion of 20 billion Euros, a competitive economy as a result of many reforms, and a painful internal devaluation and most importantly, growth is again in positive territory and is heading towards 3%," Mouawad points out.
The asset management company is optimistic, acknowledging that they are still long-term investors in Greece. "We are seeking a wave of qualification updates that started with a 2-tier update from Fitch just a few weeks ago," says the Carmignac manager.