How Greece came to the cusp of regaining investment grade after 13 years
For rating agencies and major analysts, the story of Greece’s debt regaining its investment grade after 13 years is one of the most compelling.
Germany’s Scope Ratings, which bestowed this grade on Greece recently, but which, so far, is not recognized by the European Central Bank on a par with DBRS, Fitch, Moody’s and Standard & Poor’s explains how Greece regained its investment grade and the challenges ahead.
DZ Bank, meanwhile, explores the possibility of the ‘big four’ bestowing investment grade on Greek debt and what this could mean for the country’s economy.
“Recapturing investment grade is a very significant achievement and has in fact occurred under very fast conditions for Greece from an historical perspective,” says Dennis Shen, Scope’s lead analyst for Greece. “We understand why it has seemed like a long time for Greece. Nevertheless, most sovereigns that experience sovereign default never get close to investment grade after that, let alone achieve this status 11 years after defaulting, which was in 2012 in Greece’s case,” he adds.
Shen further explains that, since Scope started rating the country in 2017, with a first rating of CC, Greece has risen eight levels to BBB- on August 7, “the most rating upgrades of any sovereign we rate.”
The Scope analyst recounts how difficult Greece’s journey to recovering its credibility was, with output crashing 30% from 2008 to 2013, the imposed austerity, the banking crises, the Covid-19 pandemic and the recent inflation crisis.
“Through this, Greece has persevered, adopting ambitious reforms and significantly raising investment and economic competitiveness. The conclusion of post-bailout Enhanced Surveillance last year and this upgrade to investment grade are further meaningful steps towards normalization, although there remains significant work to do,” Shen adds.
For DZ Bank, Standard & Poor’s is closest among large rating agencies to upgrading Greece in its next update on October 20, although it does not exclude DBRS from doing so on September 8. But, as good as upgrade prospects are, DZ does not expect any further significant rally for Greek bonds, noting that this has already taken place recently.
