The ‘silence’ of the rating agencies towards Greece increases the pressure on the ECB – In Lagarde the ‘key’ of the upgrade

Her Eleftherias Kourtali

The reasons behind Moody’s “silence” last Friday, where market expectations were for a one-tier upgrade and alignment with the other three Big Four houses (two steps below the investment grade) , or even the outlook for positives from stable ones, are the same as those of S&P, which also kept a low profile during its own scheduled assessment of Greece last month.

The main reason is none other than the European Central Bank and the decision it will take regarding the eligibility of Greece to any quantitative easing program implemented after the end of the PEPP. This may indirectly push the ECB not to make the mistake of leaving Greece. The new wave of pandemic affecting Europe as well as the course of structural reforms and the absorption of Recovery Fund resources are additional reasons explaining the waiting attitude that the two houses preferred to observe. After all, Moody’s has accustomed us both to the postponement of its ratings, keeping silent even for more than a year and a half, and to the double upgrades after a long period of silence.

The … history of Moody’s “silences”

Moody’s usually chooses this path of postponing its scheduled rating when significant developments are expected. The last evaluation of the house for our country was last November, a year ago, when it upgraded Greece by one notch to Ba3, followed by several reports from the house in the last 12 months, which gave a vote of confidence in the prospects of the Greek economy. The immediately previous evaluation was on March 19, 2019, 20 months ago, that is …

Another relatively recent “episode” of postponement of the evaluation was in September 2018 and Greece had just left the regime of the memoranda and would have to implement a series of reforms.

The house even then had chosen to wait for the (tangible) developments before “speaking”, something it did in March 2019, as mentioned above, with a double vote of confidence, after upgrading Greece by two “steps” and in B1 from B3 . Earlier in 2018, in February, the house had also proceeded to a double upgrade of Greece after a relative silence of about a year.

In August 2019, a few months after the double upgrade, the house had also decided to postpone its evaluation, pending important developments related to the change of government, the submission of the budget and the promotion of important reforms ( business climate, investments, banks). According to market participants, if the pandemic had not broken out, it is very likely that the house would have proceeded in 2020 with a double upgrade of Greece, however, it was finally limited to one level in November.

If one looks at how the house is moving in general, one will see that from 2016 onwards it moves forward with one move (either upgrade or confirmation) every year for Greece, despite the fact that it plans two evaluations.

At a turning point

2021 is a turning point for many countries and certainly for Greece. From the shock of the pandemic, they entered the path of strong recovery (due to the low base of 2020) and are moving towards the “closing” of the GDP gap in relation to pre-pandemic levels, while the effects of the Recovery Fund have not yet been seen. . Moody’s had warned in a report a few months ago that it would proceed with fewer rating actions from 2020, as a result of the ongoing global economic recovery. If the financial and credit conditions develop as expected, this will lead to confirmation of the scores it gives rather than extensive upgrades. “Most of our current assessments are in a good position to recover from the pandemic,” he said.

As far as Greece is concerned, however, there is another important event in progress, which so far has supported the upgrades of its creditworthiness in the midst of the pandemic. This is nothing more than ECB support. It is therefore reasonable for the houses to wait to hear the ECB verdict, which is expected very soon, in December, on what it will do with Greece, if and how it will continue to support it. This means that it is possible that after December there will be extraordinary evaluations by the companies, with the cause and occasion of this very fact.

At the ECB the “key”

Scope Ratings, which does not yet belong to the “big ones” but is expected to be added soon, has stressed that a significant risk for Greece is the non-continuation of support from the ECB. In addition, he has pointed out that Greece’s chances of upgrading its creditworthiness will improve if the European Central Bank continues to buy the country’s government bonds beyond the expected completion of the PEPP program next March.

Citi and Société Generale have stressed that the “key” to any upgrades in Greece lies in the stance taken by the ECB. “Any further outperformance of Greek bonds, as well as short-term upgrades to Greece’s rating, will depend on the ECB’s stance and the banks will wait for clarity on this front,” Citi said.

For its part, the Societe Generale has pointed out that the two “keys” for the upgrades of Greece by the houses are the effective use of the funds of the Recovery Fund and the attitude that the European Central Bank will take towards the Greek bonds after the end of the extraordinary quantitative easing program PEPP in March of 2022. “The decision of the ECB will affect both the cost of financing and the ratings of Greece by the houses”, he has noted characteristically.