Investors trust Greece again

26.07 — After a three-years absence, the country returns to the financial markets

Three years ago, despite hard conditions Greece successfully issued bonds for a total amount of 2.5bn euros borrowed to investors refundable in 5 years with a 5% interest rate.

Wtf?

A bond is a contract in which someone agrees to give a certain amount of money right now to a borrower in exchange for a regular income for a period of time. Issuing a bond on financial markets is like putting an announce on eBay: investors will apply to buy it, and rather than proposing a price to buy an object, they propose an income the borrower will have to pay regularly. The more that income is low, the less the borrower will pay in total, so the borrower will choose the investor asking for the lowest income. On eBay, the more buyers there are wanting an object, the more they will be incline to propose a high price to get it. Here, the more there are investors wanting a bond, the more they have to accept a low income to get it. (ed.)

So, as a borrower, succeeding to issue a bond at a low interest rate is like succeeding to sell an object on eBay at a higher price than it costs. It means you succeeded to attract a lot of investors and make them trust you on your capacity to give them their regular income. 5% is not so high, so it meant that a lot of investors trusted Greece on its capacity to give them their income, therefore that they thought Greece’s economy was about to improve.

What now?

Last Tuesday, Greece did it again and successfully found 3bn euros at a 4.625% interest rate on the financial markets . You can find three different reactions to it:

1. It’s a success

It’s better than three years ago and shows investors confidence in Greece’s painful reforms (FT). The Guardian titled: “Greece plans return to bond market as Athens sees end in sight to austerity”.

2. But calm down

On the one hand, the Swiss newspaper Neue Zürcher Zeitung mitigates the success, noticing the political and financial conditions are far better than three years ago.

On the other hand, obtaining those funds doesn’t mean “Athens really sees end in sight to austerity”. One can be optimistic noticing that projected growth is 2.1% against nothing the past year, and employment rate rose by 1.9%. But still, unemployment rate was settled at 21.7% in April. Therefore, Greek newspapers like Kathimerini talk about a superficial success rather than a structural one. The Naftemporiki even say that success is only PR.

3. And the decrease in interest rates had a human cost

The To Vima Online newspapers highlights the pain this success implied for the population. P. Muscovisci, ex French Minister of Finance and now European Commisioner, said about that “Was it too tough? Probably. Was it also necessary? Likewise,”.

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