Why Hellenic Republic Should Listen More Carefully to Debt Management Office Announcements

Undoubtedly, everyone rejoiced at the announcement of Greece’s credit rating upgrade by DBRS. While expected, it was not guaranteed, especially since Moody’s still rates Greece as ‘non-investment grade.’ However, this doesn’t change the real debt situation amid entirely new bond market conditions. A glance at the rapid rise in yields for all Southern European countries — and not only them — makes it clear that things are changing, but not for the better. What holds back an even greater increase in Greek bond yields isn’t the DBRS upgrade or a potential Moody’s upgrade. Instead, it’s because in mid-January, the Public Debt Management Agency (PDMA) wisely preempted and covered the maximum refinancing needs of the annual borrowing plan by raising nearly €5 billion from the markets. Additionally, the vast majority of Greece’s debt is with the ESM at a ‘stable’ servicing cost lower than France’s! In other words, the markets know Greece doesn’t need to borrow under these turbulent conditions with terms not accurately predicted in the 2025 budget and beyond. Despite this, we heard the Deputy Minister of Finance welcoming the activation of the EU’s ‘escape clause’ allowing Greece to borrow more for armaments without affecting fiscal metrics like debt-to-GDP ratios. However, whether von der Leyen counts it or not, this will be extra debt that must eventually be repaid. When you ask markets to lend more than planned, they respond by demanding higher interest rates, leading Greece back into the vicious cycle of over-indebtedness. This is not something those who worked hard to break the debt cycle would celebrate, especially if they have to explain to markets why Greece needs more loans…