Because the investment level is possible despite the fall of bonds

By Tasos Dasopoulos

The path to recovery of the investment level is not easy, but it will certainly not stop, because the ECB has turned 180 degrees in its monetary policy and is raising interest rates.

This is easily proven by the fact that since 2019 the country’s credit rating has received 9 upgrades, which came while the global economy was literally “frozen” by the crisis brought by the coronavirus pandemic. The last two from S&P and DBRS, which brought Greece one step below the minimum investment, came in the energy crisis. Therefore, rating agencies are not affected by current circumstances.

The rating agencies have upgraded Greece because it has improved the management of the public sector in a series of crises, reduced red loans, completed reforms and is now gradually relieving itself of the burdens of the multi-year period of the memoranda. In April, it repaid early the remaining $ 1.81 billion in loans to the IMF, as did all the other countries that implemented rescue programs. In the Eurogroup on Thursday, Greece will receive approval at the level of the Council of Finance Ministers, for the exit from the enhanced supervision, a regime that is the last “weight” from the era of harsh austerity.

All this in fact, despite the fact that in 2020, with the outbreak of the pandemic, the Greek debt reached a record high of 206.3% of GDP and the deficit reached 10%.

It’s happening now

Rising interest rates by the ECB as a hedge against ever-increasing inflation have in turn led to higher bond yields in the countries with the highest debt. Apart from having the highest debt within the EU, Greece has not recovered the minimum level of BBB- three years after the withdrawal from the memoranda.

The markets anticipate the difficulty of lending to our country but also to neighboring Italy, which has the second largest debt. In a “reflex” move, the markets proceeded to sales, which increased the yield of the Greek 10-year to 4.1% and the corresponding Italian to 3.7%. But all this was to be expected. The next period will be just as expected and “explainable”, so the odds will continue to rise for the same reasons.

Especially for Greece, after the debt settlement in 2018, the rating agencies know, apart from the cyclical increase in yields, that the Greek debt, despite its size, is regulated, for at least 10 years. 2/3 of the debt is in the hands of the “official sector” at low interest rates with annual refinancing obligations not exceeding 10-12% of GDP and with a large average maturity period of up to 21 years. They also know that Greece has one of the proportionally higher cash reserves (up to 39 billion euros) with which, it can meet its needs, without borrowing for 3.5 years. In other words, no one can claim that with the current data Greece is in danger of entering a new debt crisis

What will count

The most important point for rating agencies at this time is political stability. In this regard, in the interviews of experts with the Greek authorities, they ask to know when elections will take place and what are the chances of a significant change in economic policy.

After political stability, their focus is on the basics: Fiscal adjustment to deficits and debt, but also the growth dynamics of the economy. They also want to see non-performing loans approach a percentage of the European average of 3.4-4%.