Last week, Greece returned to the bond markets amid applause. Two years ago, the country that sparked the eurozone crisis beat Argentina to take the top spot as the world's biggest debt restructuring in modern times.
Yet, demand was such the bond offer was seven times oversubscribed that it managed to borrow €3bn over five years at a yield of 4.95%. That's a far cry from the 30%-plus yield seen on its ten-year bonds in the depths of the crisis (see chart below).
Does it mark the end of the eurozone crisis? Hardly. European Central Bank (ECB) head Mario Draghi spent the weekend talking down' the euro with the threat of some form of quantitative easing (QE).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
"The strengthening of the exchange rate requires further monetary stimulus," said the ECB boss at meetings with the World Bank and the International Monetary Fund in Washington. The euro has risen by around 6% against the US dollar this year.
A strong currency is deflationary (it makes imports cheaper and hurts exporters). With inflation low or negative across the eurozone, some fear that Europe will turn into Japan.
The market will need to see action for the euro to weaken substantially". Jens Weidmann, the head of the German central bank, has backed negative rates rather than QE, but is unlikely to back action until the ECB issues a fresh inflation forecast in June.
A strong currency only means more pain for Greece, whose "long-term solvency remains far from certain", says Wolfgang Mnchau in the FT. Yet ironically, now could be the perfect time for Greece to default. It has a budget surplus before interest payments so it wouldn't needto borrow to cover its living expenses.
If that debt were forgiven, or defaulted on, Greece could leave the euro and establish a new, weaker currency.The scenario would initially "freak" investors but they would soon get over it.
A reformed Greece, capable of growth, would be attractive to foreign investors in the real' economy as well, not just to financial investors like the ones who bought its bonds last week.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
December 2023 NS&I Premium Bond winners - check now to see what you’ve won
If you hold money in NS&I Premium Bonds, you can check from today (2 December) to see if you have won in the December prize draw. Here’s how to check.
By Vaishali Varu Published
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
By Dr Matthew Partridge Published