The Miracle of the Greek Economy: From Survival to Revival?

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Overview of the topics

  • Stocks Highlights: The conservative New Democracy party emerged triumphant in Greece's parliamentary elections.
  • Financial Data: The possibility of another four-year term for Mitsotakis has sparked a positive answer in the markets.
  • Economic Data: Greece is close to reclaiming its investment grade status, a milestone after losing it during the debt crisis.
  • Onchain Data: In Greece, the popularity of BTC is exploding and 8.6% of the population owns some form of cryptocurrency,
  • Deep Dive: On 30 June, a substantial number of BTC options are set to expire, marking the largest mass expiry in several months.

Stocks Highlights

“New Democracy” stays in power

The conservative New Democracy party emerged triumphant in Greece's parliamentary elections, securing an absolute majority in the parliament.

Image source: Greek Reporter

Kyriakos Mitsotakis, the leader of New Democracy, managed to extend his party's substantial lead over the left wing Syriza party, securing nearly 158 seats out of the total 300-seat parliament. This success was facilitated by the new electoral system, which grants the party 50 bonus seats.

Image source: CNN

The elections marked the second time in a span of five weeks that Greece went to the polls, following the round on May 21, where New Democracy secured the highest number of votes but fell short of an outright majority. Mitsotakis expressed ambitious goals for his second term, emphasizing the potential for transformative change in Greece through dynamic economic growth that would lead to higher wages.

Graph source: Politico

Financial Data

After the elections Greek stocks rallied

The possibility of another four-year term for Kyriakos Mitsotakis has sparked a positive answer in the markets, with the Athens Stock Exchange General Index experiencing a remarkable surge of over 36% this year.

Graph source: Bloomberg

Additionally, the yield on Greek 10-year bonds dropped by five basis points on Monday, reaching 3.55%, the lowest level since August 2022. Mitsotakis, emphasizing his economic stewardship, stated on Monday, "We will put in practice in the second four-year term big changes and big reforms".

Image source: Politico

Mitsotakis campaigned on Greece's economic transformation, highlighting the recovery of gross domestic product to nearly pre-debt crisis levels in 2010. Greece has witnessed a significant reduction in unemployment from its peak of 28% to only 10.8%, whereas stocks and bonds have experienced considerable growth. During the pre-election period, he also pledged to increase wages, stimulate economic growth to boost private-sector salaries, enhance the healthcare system, and expedite court proceedings. Many of his plans have already been put into action, such as the recent implementation of a 9.4% increase in the minimum wage.

Graph source: Bloomberg

The foremost challenge for the new government will be to elevate Greece's sovereign debt rating, which has remained at a junk level since the global financial crisis 13 years ago. In April 2022, S&P increased Greece's rating to "BB+", which stands one notch below investment grade. Other rating agencies such as Fitch Ratings have plans to reassess the country's economic outlook in the second half of the year.

Graph source: Trading Economics

According to Eurobank SA's Chief Economist and Deputy General Manager, Tasos Anastasatos, implementing structural reforms is crucial for Greece to unlock its significant potential, attract investments, and outperform the eurozone in terms of economic growth. Barclays Bank analysts have projected that Greece could be one step ahead of a third economic megacycle in the country’s history, indicating a bullish outlook for the Greek economy. Nevertheless, it is important not to overlook the macroeconomic threat posed by the world's trajectory towards a “necessary recession”, as analysts call it.

Economic Data

The path to the investment grade status

Greece is on the brink of reclaiming its investment grade status, a significant milestone that comes over a decade after losing that crucial credit rating during the euro area's sovereign debt crisis. This achievement would grant institutional investors the ability to inject substantial capital into Greece, fueling its economic growth and recovery.

Image source: CNN

The country's economic revival has been remarkable, with growth rates surpassing expectations and outpacing those of its eurozone counterparts. It has experienced a gradual recovery since its GDP plummeted by more than a third in 2013, and the economy has shown impressive strength, especially after the COVID-19 pandemic. According to S&P, the country's debt-to-GDP ratio declined from its peak of 206 percent in 2020 to 171 percent last year. S&P further predicts a continued downward trend, projecting that the ratio will decrease to slightly above 135 percent by 2026. In the previous year, Greece demonstrated an impressive growth rate nearly double that of the euro zone's average, and it is expected to maintain its growth this year as well, with Goldman Sachs projecting a robust real GDP growth of 3.3% compared to 0.7% in the Eurozone. Those numbers are also the reason why Greece was named the top economic performer for 2022 among selected OECD nations by the Economist, who fared Greece the best in GDP, consumer prices, inflation breadth, share prices, and public net debt as a percentage of GDP.

Graph source: Goldman Sachs

The main driver behind Greece's economic resurgence is the rise in capital expenditure and formation. This refers to investment in productive capacity, such as in infrastructure, buildings, and machinery. In the past, investment levels were alarmingly low, with 10% of GDP being invested annually. Prior to the Global Financial Crisis, Greece invested around 24% of its GDP each year. Furthermore, the conventional tourism sector, which constitutes approximately 25% of Greece's GDP, rebounded strongly last year, reaching 97% of pre-pandemic levels and is projected to achieve a new record high in the current year. The shipping industry is another crucial sector where Greece is the top shipping nation in the world, owning around 21 percent of the global fleet's capacity. Greece's dominance in this sector has seen a steady increase in recent years.

Graph source: Goldman Sachs

However, capital expenditure is now on the rise in Greece, surpassing the levels seen in previous years, and it is expected to be at least 50% higher than before. The investment and spending in Greece come from both the public and private sectors. The country has the advantage of receiving significant fiscal support through a long-lasting package that will continue until 2026, amounting to over 3% of its GDP annually.

Graph source: Goldman Sachs

This support will help Greece narrow the investment gap it has had with the rest of the euro area. Additionally, public investment tends to stimulate private investment, and Greece is beginning to witness this trend, which is a positive sign for the future. In recent times, Greece has successfully attracted significant investments from major American companies like Google, Amazon, Pfizer, and Microsoft. For instance, JP Morgan is setting up an innovation payment center in Athens. Greece has also secured substantial investments from countries such as the United Arab Emirates, with a notable $4.22 billion investment initiative. These investments will likely improve Greece's infrastructure, create new jobs, and drive economic growth while diversifying the economy.

Graph source: Goldman Sachs

The Greek government stated its intention to triple RRF spending in 2023, and fulfilling this commitment would pave the way for Greek government bonds to regain their investment-grade rating. Having an investment-grade rating is significant for Greece as it brings along opportunities for investors who are restricted from investing in investment-grade securities. These are institutional investors, including pension funds, insurers, and other financial entities, who will be able to infuse significant capital into Greece. This inflow of funds will enable the greek government to secure cost-effective and reliable funding, further accelerating economic growth.

Onchain Data

Greece: a heaven also for cryptos?

Nearly 10% of the world's population currently owns some form of cryptos. Thailand leads the global adoption with 20.1%, followed closely by Nigeria and the Philippines with 19.4%.

Image source: Times

The popularity of cryptocurrencies is also growing in Greece, where 8.6% of the population owns some form of cryptocurrency, placing the country in the 30th position. Other countries with lower percentages include Denmark, Sweden, the U.K., Romania, Taiwan, and Mexico.

Image source: Twitter

During the debt crisis in 2015, Greeks turned to online trading platforms in search of Bitcoin as banks closed and capital controls were implemented. This surge in interest may explain the 163.67% growth in cryptocurrency interest among Greek women in May of this year.

Image source: BeInCrypto

Additionally, Greece has joined the European Blockchain Partnership (EBP), which aims to establish a European Blockchain Services Infrastructure (EBSI) to support cross-border digital public services while adhering to security and privacy standards.


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Deep Dive

Don’t forget to look at what BTC is doing…

On 30 June, a substantial number of BTC options are set to expire, marking the largest mass expiry in several months.

Image source: Ledger Insights

The expiry on 30 June encompasses around $4.8 billion in notional value Bitcoin options contracts. This significant batch expiry has the potential to induce market volatility…

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