Investment level uncertainty

Losing credibility can happen in a day, but it takes years to regain it. History has also shown this – not only in Greece -– with rating agencies not hesitating to quickly downgrade a country when they see “signs” of weakness on the fiscal front (we saw it a few days ago in the case of France) and take their time before proceeding with upgrades.

Greece is chasing investment grade after the election, as it is the only country in the European Union to be rated below that level, having lost it some 13 years ago, at the end of 2010. It has all the fundamentals to do so. In the event that it fails to recover it by 2024, it loses, among other things, the waiver given by the European Central Bank, so that Greek bonds are accepted as a guarantee for the financing operations of the Eurosystem, a factor that has offered security to the holders of Greek bonds and has, of course, helped Greek banks.

For many years, for about a decade, and until 2009, Greece’s rating was in the high rating category, “A,” before the fragmentation of its credibility began, which brought it down to the lowest category, that of “junk,” but also “selective bankruptcy,” in 2012. However, it did not manage to escape the junk and the “C” level before the end of 2017, when the very slow upgrades began, which accelerated from 2019 to reach today, at BB+ and one step below investment grade. However, even an upgrade to “triple B,” which is the target for this year, is far from the “A” elite that the country was in before the deficit and debt crisis began.

Fitch Ratings director Federico Barriga concedes that in the last 13 years there have been significant structural and institutional changes in Greece and at the wider EU level, which have improved Greece’s external and development resilience and limited financial risks, while the country has implemented reforms, reducing the risks of abrupt policy changes in the near future.

However the upgrade, even to the low investment grade, is not “guaranteed.” And the elections, according to the agencies, play a crucial role in this.