Fitch at Capital.gr: The 4 conditions for upgrading Greece

By Leonidas Stergiou

The current crisis is burdening the ratings of all European countries. The difference lies in the ability of a state to make the right adjustment to the fiscal mix to support growth. The interaction between growth and fiscal policy is key to Fitch’s assessments, says Michele Napolitano, head of assessments for Europe. at Capital.gr. The occasion is his report on the effects of the interest rate increase and the new tool of the ECB on future assessments in Europe and the scheduled assessment of Greece on July 8.

The Capital.gr contacted Mr. Napolitano, who stated that, for Greece, are considered important the Recovery Fund that supports the growth and favorable profile of public debt, with long maturities, small percentage in the hands of investors and high cash available. Although an increase in service costs is expected, this is not the only criterion in evaluations.

Evaluation and new forecasts on July 8

Speaking to Capital.grMr. Napolitano stated that “we will update our forecasts for the yields of Greek government bonds in view of the rating scheduled for July 8. In general, however, we expect higher yields for all Eurozone countries, mainly due to the higher inflation and the expected rise in interest rates by the ECB ”.

Referring to the ECB’s new tool for bond market intervention, Napolitano said: “Although we will have to wait for the details, in our view, the ECB tool will reduce the risks that significantly increase financing costs and impact Greece’s 10-year bond yields fell to 3.9% from 4.7% before the ECB emergency meeting. ”.

Debt sustainability

However, the head of ratings for Fitch Europe believes that “the debt will remain high for a long time but the upward trends will be offset by factors that will help its sustainability. Greece’s cash will remain quite high. bonds have risen significantly, but the small percentage of debt in the hands of individuals and the average maturity of 20.5 years offset the impact on service costs. “In this, the repayment of the IMF loans in April, that is, two years earlier, has helped”.

Impact on evaluation

According to Mr. Napolitano, “Bond yields and service costs are just some of the factors that are taken into account in our assessments. The increase in service costs is just one of the conditions that determine a country’s overall fiscal position. “There are other factors, such as the interaction of economic growth and fiscal policy that are key to our credit ratings.”

Conditions for upgrade

In his question Capital.gr Regarding the impact of the current situation on the assessment of Greece’s creditworthiness, Mr. Napolitano replied that “the main factors that could lead to an upgrade of Greece are: maintaining confidence that the public debt-to-GDP ratio will decline steadily “Continuing to improve asset quality by systemic banks and improving growth prospects in the medium term, especially through the development of the Development Fund and other reforms.”

The dangers

“The war in Ukraine and the energy crisis pose a threat to public debt, not only in Greece but in Europe as a whole,” Napolitano said. negative to growth. “A higher and more persistent price level can affect the consumption and profit margins of companies, limiting, among other things, economic activity, the ability to reduce high debt and the faster improvement of the criteria taken into account by us in the evaluations”, he clarified.

Recovery Fund

“Nevertheless, he added, even in a more difficult situation, the Development Fund is a support factor that can offset some of the negative effects of the crisis on the economy,” Napolitano added.