Greece borrows at the same interest rate as the U.S.

Greece is currently borrowing at the same interest rate as the United States. This week, the interest rate on a ten-year Greek government bond fell to 2,08%, the same percentage that investors are asking for a U.S. loan with Same duration. That was virtually unthinkable five years ago, when interest rates on Greek debt were above 10%. In recent years, Greece has been able to borrow more and more cheaply, while US interest rates have hardly fallen.

How did interest rates on Greek government bonds fall so quickly? There are several explanations for this. Over the past five years, under pressure from the European Commission, the ECB and the IMF, the country has implemented drastic reforms, turning its structural deficit of more than 10% per year into a small surplus. As a result, the market has more confidence in the sustainability of public debt. Greece's public debt is still quite high at around 180% of GDP, but it is no longer rising. The Greek economy is also showing signs of growth again after years of contraction.

In addition to these fundamental improvements, Greece is also benefiting from accommodative monetary policy. In recent years, the ECB has not only bought government bonds to keep interest rates low, but the central bank has also provided emergency liquidity to support the Greek banking sector. Draghi's recent statements that he is ready to intervene again have assured investors that they can safely park their money in government bonds of euro countries.

Yields on government bonds further down

Yields on government bonds have fallen further in recent years due to a flight to safe havens and a global savings surplus. Interest rates are also falling again in the United States, although the fall is less spectacular than that of Greece. Perhaps the U.S. government can take a leaf out of Greece's book, because the U.S. budget deficit only seems to be increasing under the Trump administration. According to the Congressional Budget Office, the budget deficit will increase further in the coming years, reaching more than $1 trillion in 2022.

United States and Greece pay the same interest rate for a 10-year loan (Source: Bloomberg)

Greek economy is growing again (Source: Trading Economics)

Government debt remains high, but is no longer rising (Source: Trading Economics)

Greece has managed to turn deficit into a small surplus (Source: Trading Economics)