Greece needs to step up its budgetary adjustment to put its debt ratio firmly on a declining path and to bring it down swiftly below the reference value of 60% of GDP in the near future. A further steady decline in public debt and an appropriate debt management strategy would reduce the vulnerability of Greece’s public finances.
As it has moved around, it has in turn generated behavioural responses from market participants. For example, when the basis got particularly wide a year or so ago, a number of banks which had previously found it uneconomical to arbitrage the market, re-entered as it was profitable to do so, even given the balance sheet costs to them of the trade.