Greek sovereign bonds have achieved a historic milestone, closing their yield gap against France, reflecting Greece’s fiscal reforms and economic resilience. Meanwhile, French bonds face pressure from political uncertainty, rising deficits, and structural economic challenges.
During the darkest days of the eurozone sovereign debt crisis, Greek 10-year bonds yielded nearly 40 percentage points, or about 4,000 basis points, more than France’s government bond, as the hellenic country teetered on the brink of default, weighed down by a debt burden exceeding 175% of the gross domestic product, severe austerity measures, and the spectre of a “Grexit.
Fast forward twelve years, Greece has rewritten its economic narrative, with its government bonds narrowing the gap to France’s, marking a remarkable turnaround for the former poster child of the Eurozone’s debt crisis.
As of late November, Greece’s 10-year sovereign bonds yielded below 3%, aligning with the yield on France’s OAT bonds. In effect, investors now receive identical compensation for lending to Greece as they do to France.
This shift reflects Greece’s fiscal renaissance and relative stability, juxtaposed with rising concerns over France’s fiscal and political trajectory.
Greek bonds: From crisis to confidence
The driving force behind Greece’s remarkable bond market performance is a combination of fiscal discipline, economic reforms, and resilience against high interest rates.
Analysts attribute the milestone to sustained fiscal overperformance, with Greece’s primary budget surplus expected to reach 2.4% of GDP this year, surpassing the 2.1% target.
“The Greek economy continues to outperform, with robust private consumption and investment driving growth,” said Bank of America analyst Athanasios Vamvakidis in a recent note.
According to Bank of America, Greece remains insulated from rising interest rates compared to its eurozone peers.
Most of its public debt is held officially under fixed, low-interest terms with an average maturity of 20 years, while private sector debt remains subdued following a decade of credit contraction.
The resurgence of Greek government bonds (GGBs) has extended to the broader financial sector. “We now have a positive outlook on the Greek banking sector,” added Vamvakidis, with Buy ratings on major players like Eurobank, Piraeus, and Alpha Bank.
GGBs’ tightening spreads against German Bunds—currently around 70 basis points—reflect the market’s confidence in Greece’s fiscal health, though geopolitical and broader market risks could temper further gains.
France faces mounting fiscal and political pressure
Meanwhile, French bonds have faced headwinds, with the yield on 10-year OATs climbing to 2.945% in late November, reflecting an 81.7-basis-point premium over German Bunds. The sell-off was triggered by a confluence of fiscal challenges and political uncertainty.
Prime Minister Michel Barnier’s government is grappling with public backlash over a contentious €60bn spending-cut proposal, which Marine Le Pen’s National Rally opposes.
With parliamentary elections potentially looming next July, political stalemates risk paralysing fiscal reforms.
Goldman Sachs analyst Alexandre Stott noted the difficulty of reducing France’s budget deficit from 6.1% of GDP to the government’s 5% target, describing it as “a tall order.” Stott added, “We expect the debt-to-GDP ratio to rise to 118% by 2027, given the scale of the proposed consolidation and the reliance on tax increases.”
Political fragility further complicates France’s fiscal consolidation efforts. “The lack of political capital and limited fiscal headroom will likely constrain France’s ability to tackle structural reforms in the near term,” Stott warned.
Greece vs. France: Structural challenges highlight economic divergence
The contrasting trajectories of Greece and France reflect deeper structural shifts.
Greece has emerged as one of Europe’s most dynamic economies, supported by improved creditworthiness and fiscal discipline.
France, by contrast, faces entrenched challenges such as ageing demographics, high energy costs, and stalling productivity.
According to Eurostat’s latest Autumn Economic Forecast, Greece’s economy is projected to grow by 2.3% in 2025, up from 2.1% in 2024, reinforcing its position as one of the eurozone’s most dynamic performers. By contrast, France’s economic growth is expected to slow to a modest 0.8% in 2025, down from 1.1% in 2024, highlighting the challenges facing Europe’s second-largest economy.
This divergence also extends to fiscal trajectories. Greece’s public debt-to-GDP ratio is forecast to decline significantly, from 153.1% in 2024 to 146.8% in 2025 and 142.7% in 2026, reflecting ongoing fiscal consolidation.
Meanwhile, France’s public debt is set to rise steadily, increasing from 112.7% in 2024 to 115.3% in 2025 and reaching 117.1% by 2026.
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