Investment grade remains elusive
The recent health crisis is dampening hopes of a credit rating upgrade for Greece. According to Capital Economics economist Melanie Debono, “it is now highly unlikely that any government will be upgraded by the credit rating agencies in the near future, given that the world is on the verge of a deep recession. Greece is not immune from this.”
Still, analysts stress that Greece’s inclusion in the European Central Bank’s emergency bond buyback program (“QE”) is a significant step and that it will help shield the country’s cost of borrowing, making the prospect of missing out on an investment-grade rating less important.
On the downside of course, the delay is not helping local banks, as Greek bonds continue to be ineligible for collateral to get ECB funding.
Jens Peter Sorensen, a chief analyst at Danske Bank, says that the situation is not all bad. “The rating upgrade is most likely off the table given the negative impact from the coronavirus but if you look at Portugal, they kept their positive outlook by S&P despite the coronavirus. So Greece might keep the positive outlook by S&P and Fitch,” he tells Kathimerini.
“QE is indeed a big story for Greece, because it shows that the ECB is going all in and for sovereigns the rating does not matter. This is a huge relief for Italy especially but also for Greece. Hence, even if Greece were to be downgraded, then it is still part of the new program. So, this is very positive for Greece and Greece should also see lower funding costs,” Sorensen adds.
DBRS Morningstar has given Greece a BB (low) credit rating with a Positive trend. Nichola James, the firm’s co-head of global sovereign ratings, says that “as with all other sovereigns, coronavirus will adversely impact the economy and in Greece’s case especially the tourism sector. That said, the Eurogroup welcomed good progress with reform implementation and primary surplus of 4 percent last year.”
James further points out that “at the moment there are mitigating risk factors stemming from Greece’s euro system membership. Fiscal rule flexibility is now offered to Greece to deal with the coronavirus crisis and the ECB’s waiver to buy its debt provides a helpful backstop.”
