Capital raisings in the wake of a domestic stress test have enabled Greece’s four systemic banks to pull in private investors and begin the return to normality.
While the country’s financial and economic crisis is far from over, Greece is decisively heading in the right direction. The government is running a primary budget surplus (excluding debt servicing costs) and in April 2014, it was able to return to the capital markets for the first time since 2010, with a €3bn five-year bond that was more than six times oversubscribed, resulting in an eventual yield of less than 5%. Richard McGuire, senior fixed-income strategist at Rabobank, talks of a period of “bullish reflexiveness” in peripheral eurozone sovereign debt markets.
“There is self-generating momentum as spreads narrow, leading to ratings upgrades, and allowing bailed-out countries to dip their toes back into the market. That started with Ireland last year, then Portugal in early 2014, and now Greece,” he says.
A different kind of Grexit
Instead of the country’s departure from the eurozone, when investors talk about 'Grexit' they are now referring to its exit from the International Monetary Fund (IMF) rescue programme. The ability to reaccess sovereign debt markets has already enabled Ireland to end its IMF programme in 2013, followed by Portugal in May 2014.
However, the Greek banking sector still faces profound challenges. The capital raisings to return the four systemic banks to viability in April 2013 required large injections from the country’s multilateral-backed bail-out fund, the Hellenic Financial Stability Fund (HFSF), which ended up as the majority owner of all four banks (see table).