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Maintaining primary surpluses and reducing public debt as a ratio of GDP while promoting reforms that foster growth are the prerequisites in keeping the public debt’s funding cost low, the parliamentary budget office said on Monday.
It added that this policy would also restrict the repercussions of global shocks on the Greek economy. In a research note titled, “Greek Sovereign Yield Sensitivity to Global Uncertainty Shocks: Evidence from Daily Data, 2016-2026,” authors Alexandros Kontonikas and John Tsoukalas spoke of a “remarkable transformation” that Greek sovereign bond yields underwent over the past decade, noting that while they were above 7% in 2016, they fell to levels “broadly comparable to Italy and Portugal by 2024,” reflecting unprecedented fiscal consolidation.
As they noted, “The central finding is a structural shift in the pricing of Greek sovereign debt: In the space of little more than two years, Greece moved from the single most uncertainty-sensitive sovereign in the sample – reacting to systemic-stress days by more than double the magnitude of any other sovereign during the pandemic – to the middle of the high-spread group, at or below Italy,” the authors said, calling the effect “a fiscal credibility effect.”
