As Yields Tank, HSBC Warns Greece Needs More Debt Relief

(MENAFN- ValueWalk) Greece is turning itself around, according to experts and credit markets, but is ?

How does , a country with a Non-IG credit rating, Debt to GDP of almost 180%, 21% unemployment and a teetering pension system have a yield lower than the US? 3 Years ago they were just being bailed out

— Billy Cook (@BCookResearch)

After a string of highly public with European authorities and following a parade of finance ministers – Greece went through nine such finance ministers during the last eight years of its debt crisis – fortunes could finally be changing. The Medeterian nation could exit its bailout program in 2018, an HSBC report optimistically points out. But that bailout might require debt relief, a concept that was formerly by certain members inside the Troika.

HSBC's report that Greece might be exiting from its bailout comes as economic conditions have improved as financing costs have dropped. In fact, Greece might not need as much money as initially projected.

The good news for debt-ridden Greece is seen in their ten-year bond yields, which a high of 40% in 2012 at the height of the debt crisis panic, have subsided to 3.9% Thursday.

The lower interest rates point to a victory in an economic battle that involved controversial austerity measures, including cuts in government spending that resulted in street protests as recent as this past .

The number of public sector employees fell by 26% from 2009 to 2015, as government reforms were a key demand made under terms of the bailout. But employment prospects in Greece overall have since improved. Unemployment at 26.5% but since dropped to 20.6% this past October. Youth unemployment, stubbornly high at 52.4%, is now just above 40%.

Even amid improving conditions, HSBC European Economist Fabio Balboni is not completely confident the exit will be '.'

'With programme implementation heavily front-loaded, and only a few actions remaining for the March-June period, it seems plausible that Greece will be able to successfully exit the bailout programme this year,' he wrote in a January 4 report. 'Whether it can achieve a ‘clean' exit – ie without a follow-up programme (even a precautionary one) – is less certain.'

In fact, Balboni thinks "debt relief" is required.

The importance of bond yields on Greek debt on government spending is clear. With high debt, near 180% of GDP, the country is vulnerable to its budget being gobbled up with debt payments even with a small rise in interest rates, Balboni observed.

The question of Greece pilling up debt and derivatives to an extent that cannot be logically be supported by their economy has been the hot topic that mostly remains unaddressed. Are those who structured the debt at all responsible if it created economic catastrophe?

This notion was put forth by those who advocated debt relief for Greece, including Eric LeCompte, a UN debt relief consultant and executive director at .

'Greece isn't out of the woods yet,' he told ValueWalk Thursday. 'If we really want Greece to get out of its challenges, this requires debt relief.'

Debt relief has been the third rail of the Greek negotiations. While some advocated flat out debt forgiveness, as was done in 1953 through the that forgave Germany a significant amount of its war debt, LeCompte points to more structural relief.

With 80% debt held by the Eurozone, he points to extending maturity and reducing real payments and creating triggers in a payment system that is relative to the ability of the sovereign nation to pay. 'A means a successful EU,' he said, noting that doesn't mean a debt write off is required as such, but rather accommodation.

Balboni, for his part, recognizes the risks and is early among bank analysts to advocate meaningful debt relief.

"Our analysis suggests that, without the provision of substantial debt relief, Greece will fail to meet the IMF's debt sustainability requirement," he wrote. 'Over time, investors might worry again about a possible debt restructuring. In our view, a sustainable exit strategy requires the eurozone to deliver substantial and credible debt relief, including automatic maturity extensions and longer grace periods.'

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