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Greece’s credit rating was upgraded to investment grade status for the first time since the debt crisis that erupted more than a decade ago and led to three international bailouts.
DBRS Morningstar raised its credit rating on Athens to “Triple B” on Friday, beginning a series of upgrades from “junk” territory that is widely expected.
The agency said the upgrade reflected its view that in line with Greece’s “impressive” balance sheet, the Greek authorities “will remain committed to fiscal responsibility and ensure that the public debt ratio remains on a downward trend.” DBRS added that it expects Greece’s primary budget balance to reach a surplus of 1.1 percent this year and a surplus of 2.1 percent in 2024.
Although the company is not one of the “big three” agencies, its ratings are recognized by the European Central Bank, which gives its opinions immense importance within the Eurozone. The return to coveted investment-grade status is, in the eyes of investors, the latest sign of Athens’ recovery after being pushed to the brink of bankruptcy and exit from the euro zone.
“Greece’s investment grade upgrade is like a seal of approval that finally puts the crisis years behind us,” said Alex Patelis, chief economic adviser to Prime Minister Kyriakos Mitsotakis. “There is no room for complacency. We will work hard to meet and exceed these new expectations.”
The modernization brings welcome news for Greece, which has been hit by devastating wildfires and extreme floods in recent weeks, causing billions of dollars in damage and increasing concerns about extreme weather due to climate change.
“At a time when all our thoughts are with the victims of the unprecedented natural disasters and their families, the restoration of Greece’s investment grade status after many years is a very important development for our country,” said Greece’s Finance Minister Kostis Hatzidakis.
Since the end of its rescue program in 2018, Greece has regained access to the bond market and was able to reduce its debt ratio to gross domestic product to 171 percent last year. In the second quarter of 2023, the country recorded the second strongest GDP growth in the EU.
DBRS said the improved credit rating also “reflects a strengthening of cooperation with the European Union and Eurosystem institutions,” resulting from past fiscal consolidations and reforms.
DBRS’ move means Greek debt will automatically be eligible for the ECB’s asset purchase programs and for the reinvestment of maturing bonds on the central bank’s balance sheet, as DBRS operates on a first-best basis among its four recognized rating agencies. The appreciation may also result in Greek banks gaining easier access to wholesale financing due to a broadening of the collateral base.
Greece was granted an exemption from the ECB’s requirement to only buy investment-grade debt in the early stages of the Covid-19 pandemic. However, this should expire at the end of 2024.
“With the appreciation, the country will have full access to ECB liquidity,” said Dimitris Malliaropulos, chief economist at the Greek central bank. “This will have a positive impact on Greek bond yields.”
Investors are not expecting much of a reaction when the bond market opens on Monday as Greek bonds are already trading at investment grade levels. Greek benchmark 10-year debt is trading at a yield of 4 percent, below the 4.3 percent yield for Italy, which has investment grade status. Yields fall as prices rise.
But the upgrade brings Greek bonds a step closer to inclusion in investment-grade indices, which typically require a rating from at least one of the three leading agencies – S&P, Moody’s and Fitch. This would make Greek government debt available to a wider range of investors, some of whom are prohibited by their mandates from buying junk-rated bonds.
DBRS’ move “supports existing speculation that this is a path that the other ratings agencies will follow,” said Richard McGuire, head of rates strategy at Rabobank.
Source : www.ft.com