In 2009, Greece faced a huge financial crisis. As with other countries, the Greek economy was negatively impacted by the Great Recession, which occurred between 2007 and 2009. Combined with weaknesses in the structure of its economy, Greece was soon met with financial trouble. It was soon revealed that the country owed a lot of government debt.
Since then, Greece has been trying to rebuild its economy and to pay off its substantial debts. Because of this improvement, Greek bonds are becoming increasingly sought-after. These bonds became available in 2017. Many people are now interested in investing in Greek bonds.
This raises the question of whether this is a good investment. Is investing in Greek bonds worth it? What are the risks? Find out below.
What Caused the Greek Financial Crisis?
As mentioned in the Introduction, Greece was financially crippled around 2009. Though they have since improved their economic position, it is still worth understanding some of the history behind the financial crisis. This will help to explain both the advantages and disadvantages of investing in Greek bonds.
There are a number of factors that caused this crisis. One of the main factors that caused this crisis was the country’s historical debt. In 1932, Greece had to deal with a previous crisis. This one was impacted by the Great Depression. Despite this, the country owed less debt than many other countries.
It was not until the 1980s that the debt that Greece owed increased remarkably. Between 1993 and 2007, the country’s debt-to-GDP (gross domestic product) was a staggering 102%. Despite this, the figure was lower than Italy’s 107% debt-to-GDP ratio.
An audit meant that the figure of Greece’s debt was altered. As a result, many people were shocked when it was revealed that the debt was actually much higher. The debt increased even further in 2009. The government realized that it lacked the economic infrastructure to pay off this debt, which would continue to increase beyond sustainable levels.
The Greek government was also simply spending too much money across this period. The salaries of those employed in the public sector increased annually. The state also offered bountiful pensions. Though these may seem like positive examples of the Greek economy, they actually demonstrate that the European country was wasting money. They were also spending a lot of money on defense, due to a long-time hostility between Greece and Turkey.
In the 2002 and 2007 period, Greece’s economy was increasing exponentially. On average, it increased by 4.2% each year. This will likely sound like the country’s economy was in a good position. However, this financial growth was matched with a deficit.
“What is a deficit?” you may ask. Put in a straightforward manner, a deficit is a state in which a company or government spends more money than they are bringing in. As you can imagine, this is not a good situation for a country to be in.
Though the country experienced economic growth at the start of the twenty-first century, it also witnessed considerable overspending. The government’s ex[enditures rose by a whopping 87%. As a result, the deficit led to the country’s financial crisis.
Additionally, the Great Recession impacted the financial crisis. The tax revenues were already low in Greece, but these were further negatively impacted when the world experienced the Great Recession. In order to borrow money, the Greek government had to make substantial cuts. This resulted in higher unemployment rates.
The Light at the End of the Tunnel
To get out of its financial predicament, Greece has tried several different methods. The first instance of this is their austerity measures. Greece was awarded a loan on the condition that it made severe austerity cuts. Though these decisions were not popular with a large amount of the Greek population the measures were nonetheless agreed to in 2011. This resulted in riots across Greece.
Since then, two more economic adjustment programs have been signed. As you may have worked out from their names, these programs are designed to help improve Greece’s economic situation.
What are the Advantages of Investing in Greek Bonds?
One could make the case that Greek bonds are profitable to invest in due to the fact that the country’s economy will continue to improve. Though it is not completely possible to accurately predict how the country will improve, the case can be made that Greece will eventually escape from its poor financial situation. The economy in Greece has experienced growth. As a result, their bonds will become more valuable.
A similar argument has been made that the country will not have to pay any massive form of debt until 2023. This is a result of the restructuring of their debt all the way back in 2012.
Furthermore, you can take solace in the fact that these bonds have been selling quite well. After all, there must be a reason why people are investing in them. If your investment does pay off, it will certainly look impressive on your credit portfolio to possess Greek bonds. Not many people can say they have made such a brave and bold move. If you are trying to build up your portfolio, Greek bonds will likely appeal to you.
What are the Disadvantages of Investing in Green Bonds?
It is quite a risk to invest in Greek bonds. Though this may appeal to risk-takers, the Greek bonds are in an unsteady position. In 2020, the Fitch Ratings marked Greek bonds with a BB rating. As anyone in the industry knows, this signifies a heightened risk for investors.
If you invest in Greek bonds, you could lose a substantial amount of money. Consequently, it is advised that you only invest in these bonds if you have a lot of money and are in a good financial position.
Though the Greek economy will likely be rebuilt, this could take several years. As a result, it could take a long time for your investment to become worthwhile.
How do I Invest in Greek Bonds?
Compared to other forms of credit, Greek bonds are not the easiest to invest in. At the moment, you cannot invest in Greek ETFs (exchange-traded funds). You may be able to find hedge funds that have invested in Greek debt. However, these funds are not entirely focused on the Greek economy.
As a consequence, the main way of investing in Greek bonds is via a brokerage company. There are lots of banks and firms that are offering Greek bonds. On the other hand, they will require a substantial amount of money. This will likely be at least $100,000.
You may want to contact a credit agency before investing in Greek bonds. Banks and brokerage companies will help you find the right bonds to invest in.
Frequently Asked Questions
Whenever you are considering investing in a form of credit, there are naturally a lot of important questions that arise. To help you, we have provided answers to some of the most common questions. This should hopefully provide clarity and will help you to decide whether or not to make an investment.
Can you lose money in a bond?
Yes, you can lose money on a bond. This is why investing is quite a risky business. There are a few factors that can cause you to lose money. They include:
- Interest rate changes – if interest rates rise, the price of a bond will fall.
- Downgrades in credit – credit rating agencies will rate how good a bond is. If the credit rating changes, it could negatively affect the value of a bond.
- Inflation – your bonds can become less valuable due to inflation. This can also happen if deflation occurs.
What is Greece’s credit rating?
Fitch Ratings, one of the largest credit rating agencies in America, have given Greece the credit rating of BB. BB is a speculative grade that shows a positive outlook. However, this also indicates that investing in Greek bonds can be quite hazardous. It shows that the country is particularly vulnerable to economic changes. Consequently, you should only invest in Greek bonds if you have taken this into consideration.
What countries have the best credit ratings?
If you are looking for a country with a solid credit rating, you will want to look for countries with AAA ratings. This is the highest rating and it designates that these countries have an extremely high level of creditworthiness. As of 2021, the countries that hold AAA credit ratings are:
Ultimately, the high risk, high cost, and low availability of Greek bonds mean that they are not the hottest investment opportunity on the market. Though some investors will still be determined to invest in these bonds, it is advised that you look elsewhere if you are looking for a cheaper and less risky form of investment. Thankfully, there are hundreds of investment opportunities out there for you to choose from. If you are looking for a high-risk investment opportunity, look no further than Greek bonds.