What a truly strange week we just had. On one hand, the Athens Stock Exchange dropped 4.2% in just two days. And the main reason wasn’t something that happened locally. It was Paris. On the other hand, two rating decisions were released on Friday night—one for Greece and one for France. These ratings, combined with bond yield figures, point to something that a few years ago would have sounded like a joke: Greece is now borrowing at lower costs than France.
A Difficult Week
Let’s start with the Athens Stock Exchange (ATHEX). On Friday, the General Index closed at 2,530 points, down 2.22%. It was the lowest close since late July. Combined with Thursday's losses, the decline reached 4.2% in just two days. Banks suffered the most, dropping 4.52% on Friday alone and 6.6% over the entire week. Looking at the whole month of October, the General Index is down 7.6%.
“So what does France have to do with Greek banks, Christos?” you might ask. The answer lies in the bond markets. The French 10-year yield crossed 5% for the first time since 2002. When borrowing costs rise so sharply for a major eurozone economy, anxiety spreads to European banks—and from there, it reaches us. Combined with high oil prices, that was more than enough for many investors to hit the sell button.
However, it’s worth noting that even after this drop, the General Index remains up 19% since the start of the year.
What the Rating Agencies Decided
And that brings us to Friday’s credit ratings.
S&P kept Greece at BBB with a stable outlook. The numbers in the report are very interesting:
- S&P projects a primary surplus of 3.8% of GDP for this year.
- An overall budget surplus of 0.8%, which is roughly one percentage point above the original target.
- Through August, the budget was running €1.1 billion ahead of target, driven by tourism, VAT revenues, falling unemployment, and improved tax compliance.
What about debt? Net public debt is projected at 123% of GDP at the end of 2026—40 percentage points lower than in 2019. S&P sees it falling further to 107% by 2029.
Now let's look at France. Moody's kept France at Aa3, but with a negative outlook. The French deficit is heading toward 5.4% of GDP this year, with debt approaching 120%. Moody's made it clear: their rating decision hinges on France passing a 2027 budget that successfully curbs the deficit.
You might wonder... if nothing actually changed, why is this news? Because the market was fearing the worst. For Greece, "no change" means the agency wasn't spooked by the week's market volatility. For France, it simply means they bought a little extra time.
The Student Surpasses the Teacher
This is where things get even more fascinating.
Take a look at 10-year bond yields:
- France: 5.03%
- Italy: 4.59%
- Lithuania: 4.50%
- Belgium: 4.44%
- Malta: 4.42%
- Greece: 4.40%
Yes, you read that right. Greece is currently borrowing at lower rates than five eurozone countries, including France and Italy.
What does this actually mean? Put simply, a bond yield represents the "interest rate" at which a country borrows. The safer a country appears to investors, the cheaper it is for that country to borrow.
To see this even more clearly, we can look at the spread—the difference between a country's borrowing cost and Germany's. On October 21, the Greek spread stood at around 100 basis points. Italy's was 113 to 117, while France's was 150 to 157.
It’s not just about bonds, either. S&P estimates that by 2029, Greece’s per capita GDP will reach approximately 55% of the EU average, up from 47% in 2019. The country that was once Europe's "black sheep" now runs a budget surplus, while France—once one of the "teachers"—is struggling to pass a budget.
It’s Not All Smooth Sailing
Of course, there is a big "but." S&P itself highlights several risks:
- High external deficits: Greece's current account deficit remains elevated.
- Energy shocks: Potential spillovers from ongoing conflict in the Middle East.
- Government spending: Spending is already running above budget, and S&P is concerned this trend could continue into 2027–2028 after Recovery and Resilience Facility (RRF) funds wind down.
What lies ahead? A few key milestones:
- Greece has submitted its final two payment requests to the Recovery Fund—worth €35.95 billion—and is awaiting European Commission approval.
- Fitch will release its rating on November 6, marking the last major review of the year. The Ministry of Finance expects all major rating agencies to assign a positive outlook by the end of 2026.
- S&P will also monitor whether fiscal policy remains consistent following the upcoming spring elections.
- As for France, its next big test comes on November 27 with S&P's review.