Greece’s Credit Rating Upgraded to Investment Grade: An Overview
Introduction
The Greek debt crisis has been a prevailing issue for over a decade, leading to multiple international bailouts and a struggling economy. However, recent developments have brought a ray of hope for Greece as its credit rating was upgraded to investment grade status for the first time since the crisis began. This article provides an overview of the upgrade, its implications, and the road to recovery for Greece.
Greece’s Credit Rating Upgrade
In a significant development, DBRS Morningstar raised Greece’s credit rating to triple B, marking a shift from the previously designated “junk” status. While DBRS may not be among the “big three” rating agencies, its recognition by the European Central Bank adds credibility to its assessment.
The upgrade reflects DBRS’s confidence in Greece’s commitment to fiscal responsibility and its ability to maintain a downward trajectory of the public debt ratio. DBRS also predicts Greece’s primary fiscal balance to reach a surplus of 1.1% this year and 2.1% in 2024, further bolstering the positive outlook.
Implications of the Upgrade
The return to investment grade status holds significant implications for Greece’s financial landscape. The upgrade:
- Signals the rehabilitation of Greece in the eyes of investors, marking a definitive departure from the years of crisis.
- Opens doors to easier access to wholesale financing for Greek banks, broadening the collateral base.
- Qualifies Greek debt for the European Central Bank’s asset purchase programs and reinvestment of matured bonds, enhancing liquidity.
- Paves the way for potential inclusion of Greek bonds in investment grade indexes, attracting a wider pool of investors.
Recovery and Resilience
Greece’s upgrade to investment grade comes at a crucial time when the country is grappling with the aftermath of devastating fires and floods, highlighting the urgent need for resilience and recovery. Nonetheless, Greece has exhibited remarkable progress on several fronts:
- Regained access to the bond market since the conclusion of its rescue program in 2018.
- Reduced its debt-to-GDP ratio to 171%, showcasing improved financial stability.
- Recorded the second fastest GDP growth in the EU during the second quarter of 2023.
- Strengthened cooperation with the European Union and euro system institutions through fiscal consolidation and past reforms.
These achievements have laid the foundation for Greece’s resurgence and positioned it as a resilient player in the European economic landscape.
Unique Insights: The Human Aspect
While the credit rating upgrade is undoubtedly a significant milestone for Greece, it is essential to acknowledge the human aspect of this journey. Behind the numbers and economic indicators lie stories of perseverance, determination, and the spirit of the Greek people:
As Greece faced the brink of bankruptcy and potential exit from the eurozone, the nation endured years of hardship and uncertainty. The upgrade serves as a symbol of hope, marking the end of an arduous chapter in Greece’s history.
The impact of natural disasters, such as the recent fires and floods, has further emphasized the importance of Greece’s recovery. The upgrade’s timing offers optimism and reinforces the country’s resilience in the face of adversity.
Prime Minister Kyriakos Mitsotakis’ commitment to exceeding the new expectations set by the upgrade demonstrates Greece’s determination to continue its upward trajectory, addressing challenges head-on.
Conclusion
Greece’s credit rating upgrade to investment grade status signifies a turning point for the country’s economy, signaling its resurgence and recovery from the longstanding debt crisis. While the journey to this point has been arduous, Greece’s steadfast commitment to fiscal responsibility and its resolve to overcome adversity have paid off.
The upgrade holds significant implications for Greece’s financial landscape, providing access to better financing options and attracting a wider range of investors. Alongside these financial advancements, Greece’s recovery and resilience must also be acknowledged, recognizing the human aspect of this journey and the spirit of the Greek people who have persevered.
Summary
Greece’s credit rating was recently upgraded to investment grade status by DBRS Morningstar, reflecting the country’s commitment to fiscal responsibility and its impressive financial progress. This upgrade has numerous implications, including easier access to financing and potential inclusion in investment grade indexes. Greece’s journey towards recovery has been marked by achievements such as regaining access to the bond market, reducing the debt-to-GDP ratio, and recording significant GDP growth. The upgrade serves as a symbol of hope and resilience for Greece, especially in the face of recent natural disasters. Prime Minister Kyriakos Mitsotakis has expressed the nation’s determination to exceed expectations and continue on this positive trajectory. Overall, Greece’s credit rating upgrade represents a significant turning point in its economic recovery and paves the way for a brighter future.
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Greece’s credit rating was raised to investment grade status for the first time since the debt crisis erupted more than a decade ago and resulted in three international bailouts.
DBRS Morningstar raised its credit rating for Athens to triple B on Friday, kicking off what is widely anticipated to be a series of upgrades from “junk” territory.
The agency said the update reflects its view that, in line with Greece’s “impressive” record, “Greek authorities will remain committed to fiscal responsibility, ensuring that the public debt ratio remains on a downward trend.” . DBRS added that it expects Greece’s primary fiscal balance to reach a surplus of 1.1% this year and 2.1% in 2024.
Although the company is not one of the “big three” agencies, its ratings are recognized by the European Central Bank, giving its views enormous weight within the euro area. The return to the coveted investment grade status is the latest sign of Athens’ rehabilitation in the eyes of investors after being pushed to the brink of bankruptcy and exit from the eurozone.
“Greece’s upgrade to investment grade is like a seal of approval, definitively leaving the years of crisis behind,” said Alex Patelis, chief economic adviser to Prime Minister Kyriakos Mitsotakis. “There is no room for complacency. We will work hard to live up to and exceed these new expectations.”
The update brings good news for Greece, which has been hit by devastating fires and extreme floods in recent weeks, causing billions of euros in damage and intensifying concerns about extreme weather caused by climate change.
“At a time when all our thoughts are with the victims of unprecedented natural disasters and their families, the recovery of the investment grade for Greece after many years is a very important development for our country,” said the Greek Finance Minister Kostis Hatzidakis.
Since its rescue program ended in 2018, Greece it regained access to the bond market and last year reduced its debt as a share of gross domestic product to 171%. In the second quarter of 2023, the country recorded the second fastest GDP growth in the EU.
DBRS said the improvement in creditworthiness “also reflects strengthening cooperation with the European Union and euro system institutions,” resulting from fiscal consolidation and past reforms.
The move by DBRS means that Greek debt automatically becomes eligible for the ECB’s asset purchase programs and for the reinvestment of matured bonds on the central bank’s balance sheet, because it applies the “first best” principle among its four rating agencies recognized. The upgrade may also result in easier access to wholesale financing for Greek banks due to a broadening of the collateral base.
In the early stages of the Covid-19 pandemic, Greece was granted a waiver from the ECB’s stipulation that it would only purchase investment grade debt. However, the deadline is expected to be at the end of 2024.
“With the upgrade, the country gets full access to ECB liquidity,” said Dimitris Malliaropulos, chief economist at the Greek central bank. “This will have a favorable effect on Greek bond yields.”
Investors don’t expect much of a reaction when the bond market opens on Monday because Greek bonds are already trading at investment grade levels. Greece’s benchmark 10-year debt trades at a yield of 4%, lower than Italy’s 4.3% yield, which has investment grade status. Yields decrease when prices rise.
But the upgrade brings Greek bonds closer to inclusion in investment grade indexes, which typically require a rating from at least one of the three main agencies: S&P, Moody’s and Fitch. This would open up Greek government debt to a wider pool of investors, some of whom are prohibited by their mandate from buying junk-rated bonds.
The move by DBRS “confirms the existing assumption that this will be the path that other rating agencies will follow,” said Richard McGuire, head of pricing strategy at Rabobank.
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