Investment grade to bring in foreign cash
The governor of the Bank of Greece, Yannis Stournaras, described the recovery of investment grade as a big challenge for the Greek government at the moment, stating however that he is confident that it will happen this year and will bring more direct foreign investments.
As he noted in an interview with Econostream, the Greek economy is entering a phase of higher growth than the European average, while at the same time the public debt-to-GDP ratio is rapidly decreasing. “The new government is determined to push through a series of reforms that the economy needs. It has a clear political horizon of at least four years. The big challenge now is to recover investment grade,” he emphasized.
Regarding the impact of such a development on the economy, he explained that to some extent it has already happened. “For example, it is already reflected in Greek bond yields. But it has not yet been discounted in terms of foreign direct investment flows.”
He added that “only 10% of funds – private investment funds etc – can invest in a country that does not have investment grade. So you can imagine the scope for new foreign direct investment or financial investment when we get investment grade. Many more funds will have the appetite to invest in the Greek economy.”
Regarding the course of the economy, the Greek central banker noted that the ideal scenario is real convergence, but without macroeconomic imbalances. “We are now at a growth rate of 2.2%, when Europe is at zero. Next year we expect 3% and in 2025 almost the same, so Greece will converge in real terms, but the challenge is to avoid macroeconomic imbalances.” As for inflation, Stournaras noted it is below the European average and structural inflation has also decreased dramatically. “So the situation is as I described it: Real convergence without macroeconomic imbalances. That’s how we want it to continue.”
Asked whether further interest rate hikes by the ECB will have a noticeable impact on Greece, the governor of the Bank of Greece replied that in terms of the country’s fiscal position, the impact will not be significant. Thanks to the favorable debt deals and the management by the PDMA, real interest rates will remain almost stable at low levels for a long time.
