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UBS: Optimistic Outlook For Greece And Its Bonds In 2025

by THEFUTURE.TEAM

January 16, 2025

UBS maintains a bullish perspective on Greek bonds, citing favourable fiscal conditions, manageable refinancing needs, and the potential for further credit upgrades. With the outlook for 2025 looking strong, the Swiss financial institution highlights key factors driving its confidence in Greek government securities and the nation’s economic prospects.

Robust GDP Growth And Recovery Fund Support

UBS projects a 2.8% GDP growth rate for Greece in 2025, surpassing both major Eurozone economies and the region’s average by 70 basis points. This growth is expected to be fuelled by increased disbursements from the Recovery and Resilience Facility (RRF), which will reach 4% of GDP in 2025 compared to 2.3% in 2024. With Greece having secured 60% of its total RRF allocation—equivalent to 16% of its GDP—its recovery is less dependent on broader Eurozone dynamics.

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Primary Budget Surplus And Fiscal Strength

Greece is on track to achieve a primary budget surplus of 2.5% of GDP in 2025. UBS attributes this to:

Greece’s likely attainment of the same surplus level in 2024.
Controlled growth in primary expenditure (3.7%), remaining below nominal GDP growth.
An anticipated €500 million boost from anti-tax evasion reforms, following a €1.8 billion gain in 2024.

Debt Management And Refinancing Efforts

The Greek government continues to focus on refinancing its most expensive debt, including the early repayment of Greek Loan Facility (GLF) obligations. These measures have improved the overall cost of servicing public debt, enabling faster debt reduction and maintaining favourable conditions for bond investors.

Resilient Banking Sector

The Greek banking system has shown significant improvement, with non-performing exposures (NPEs) reduced to 4.6%—the lowest since 2002. Additionally, corporate lending has surged to an annual growth rate of 16% by December 2024, partly due to RRF funding.

Limited Financing Needs And Bond Scarcity

UBS highlights Greece’s reduced gross financing needs for 2025, projected at €8 billion—€1.5 billion lower than 2024. This decline reflects improved fiscal balances (-0.1% of GDP deficit in 2025) and lower debt maturities.

Despite a repricing of European bond yields, Greece’s recent 10-year bond issuance achieved record demand, covering 50% of its borrowing programme for 2025. UBS anticipates another issuance in Q2 2025, with a longer duration of 15–20 years. Additionally, the limited net supply of Greek bonds supports their performance.

The European Central Bank (ECB) holds €38 billion of Greek debt in its Pandemic Emergency Purchase Programme (PEPP) portfolio, comprising 43% of outstanding Greek bonds. With minimal drawdowns expected, Greek bonds will likely retain their scarcity-driven appeal.

Investment Grade Status And Moody’s Prospects

Greece’s return to investment grade in 2024 significantly bolstered its bond market, enabling inclusion in the Bloomberg Euro Aggregate Treasury Bond Index, where it now holds a 1% share. Moody’s and S&P both upgraded Greece’s outlook to positive in late 2024, and UBS foresees Moody’s raising Greece to investment grade in September 2025, further enhancing investor confidence.

UBS’s positive stance on Greek bonds reflects Greece’s robust economic performance, effective fiscal management, and improved credit profile. With strategic debt refinancing, reduced financing needs, and a resilient banking sector, Greece is poised to maintain its upward trajectory in 2025. The nation’s ability to leverage RRF funding and achieve further credit upgrades will be instrumental in shaping its financial future and securing its position as an attractive investment destination.

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ECB Launches Geopolitical Stress Tests For 110 Eurozone Banks

The European Central Bank is preparing a new round of geopolitical stress tests aimed at assessing potential risks to major financial institutions across the euro area. Up to 110 systemic banks, including institutions in Greece and the Bank of Cyprus, will take part in the exercise, which examines how geopolitical events could affect financial stability.

Timeline And Testing Process

Banks are expected to submit initial data on March 16, 2026. Supervisors will review the information in April, while the final results are scheduled to be published in July 2026. The process forms part of the ECB’s broader supervisory work to evaluate financial system resilience under different risk scenarios.

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Geopolitical Shock As The Primary Concern

The stress tests place particular emphasis on geopolitical risks. These may include armed conflicts, economic sanctions, cyberattacks and energy supply disruptions. Such events can affect banks through changes in market conditions, borrower solvency and sector exposure. Lending portfolios linked to regions or industries affected by geopolitical developments may face higher risk levels.

Reverse Stress Testing: A Tailored Approach

Unlike traditional stress tests that apply the same scenario to all institutions, the reverse stress test requires each bank to define a scenario that could significantly affect its capital position. Banks must identify a geopolitical shock that could reduce their Common Equity Tier 1 (CET1) ratio by at least 300 basis points. Institutions are also expected to assess potential effects on liquidity, funding conditions and broader economic indicators such as GDP and unemployment.

Customized Risk Assessments And Supervisor Collaboration

This methodology allows banks to submit risk assessments based on their own exposures and operational structures. The approach is intended to help supervisors understand how geopolitical events could affect institutions differently and to support discussions between banks and regulators on risk management and contingency planning.

Differentiated Vulnerabilities Across Countries

A joint report by the ECB and the European Systemic Risk Board indicates that countries respond differently to geopolitical shocks. The Russian invasion of Ukraine led to higher energy prices and inflation across Europe, prompting central banks to raise interest rates. Belgium, Italy, the Netherlands, Greece and Austria experienced increases in borrowing costs and lower investor confidence. Germany, France and Portugal recorded more moderate changes, while Spain, Malta, Latvia and Finland showed intermediate levels of exposure.

Conclusion

The geopolitical stress tests will not immediately lead to additional capital requirements for banks. Their results will feed into the Supervisory Review and Evaluation Process (SREP). ECB supervisors may use the findings when assessing capital adequacy, risk management practices and operational resilience at individual institutions.