Loss of trust can happen overnight, but it will take years to rebuild. History has also shown this – not only in Greece – when the rating agencies did not hesitate to quickly downgrade the country when they saw “signs” of weakness on the financial front (we saw this a few days ago in the case of France) and take your time before proceeding to updates.

Greece has been “chasing” investment ratings since the election, being the only country in the European Union to have a rating below this rating, losing it about 13 years ago at the end of 2010. And she has all the “basics” for this. , succeeds. In the event that he fails to restore it by 2024, he will lose, among other things, the authorization given by the European Central Bank so that Greek bonds will be accepted as a guarantee for the financial transactions of the Eurosystem, a factor that has offered security to holders of Greek bonds and , of course, supported the Greek banks.

For years, for about a decade, and until 2009, Greece was ranked in the high ‘A’ rating category before its credibility began to crumble, dropping it to the lowest category, ‘junk’. , but also “selective bankruptcy” in 2012. However, it was not possible to get out of the trash and the “C” level until the end of 2017, when very slow upgrades began, accelerating from 2019 to today, at the level of BB + and one step below the investment level. However, even the promotion to the “B-3”, which is the goal for this year, is far from the “A” elite, in which the country was before the start of the deficit and debt crisis.

Any return to a more turbulent past will jeopardize the progress made, analysts say.

However, an increase, even to a low investment level, is not “guaranteed”. And elections, according to the chambers, play a decisive role in this.

As Fitch Ratings Director Federico Barriga notes in K, over the past 13 years, Greece and the wider EU have undergone significant structural and institutional changes that have increased Greece’s resilience and development and limited financial risks, while the country implemented reforms, reducing the risks of abrupt policy changes in the near future. Despite these changes, risks remain on several fronts, the analyst warns. “Economic activity could slow down again due to structural constraints such as an aging population or a failure to reform. Upcoming elections could also lead to a change in political position, which could complicate budget balancing or test relations with Europe. There are also questions about the authorities’ ability to maintain a tight fiscal policy over the medium to long term to reduce debt vulnerability as fiscal requirements could tighten,” he said.

“There are risks in the trajectory of a positive assessment, and such uncertainty remains in the political part and in what can happen after the 2023 elections,” Dennis Sen, chief analyst at Scope Ratings, tells K. “The dynamics of reforms and the strengthening of Greece’s relations with EU institutions. have been maintained under conditions of relative political stability since 2019. But any return to a more turbulent past in Greek politics, a failure to comply with European fiscal rules, and a subsequent rollback of reforms after the upcoming elections could jeopardize recent progress,” he said. warns.

Prudent fiscal policy is needed

This brief history “proves” how quickly trust can be lost and how many years and how much effort it takes to restore it. This is a “lesson” that should be learned by all those who will be at the helm of the country in the coming years.

As noted by Moody’s, history has shown that the time it takes for a country to return to investment grade from the moment it was lost ranges from three to 14 years. Thus, Greece is approaching this upper “limit”. Countries that have returned to investment grade have shown significant transformations, including institutional improvements, strengthening their public finances, and higher sustainable growth prospects. According to Moody’s, the only way forward is to improve financial prospects and growth, and, of course, prudent policies.

A lot has changed in Greece over the years, but at the same time, a lot needs to be done, Nicola James, co-head of the DBRS ratings agency, notes in K. “Greece has corrected the large macroeconomic imbalances (double deficit) that led to the previous crisis. It went through a major fiscal consolidation, sometimes painful, but managed to stabilize its finances, as well as implement reforms that increased competitiveness. However, as the COVID-19 crisis has shown, having a diversified and productive economy insulates it from external shocks. In addition, having prudent fiscal policy in place ensures that the government can provide assistance to support the economy when needed, as we have seen in COVID-19 related relief packages and energy support measures.”

Commenting in K on Greece’s course over the 13 years, S&P analyst Samuel Tilly points out that Greece’s sovereign debt crisis has caused a prolonged period of economic downturn and institutional instability, as well as severe investment shortfalls, as successive governments cut spending on health care, education and infrastructure. This period appeared to be coming to an end in 2019 as FDI rebounded and business confidence improved rapidly, coupled with progress on fiscal consolidation and structural reforms.

Reflecting these efforts and relatively positive results, Greece’s credit rating has improved in recent years. The S&P analyst highlighted in this context that while Greece has consistently been the most indebted member of the OECD until 2021 (Japan has since taken that position), the government appears to be on track to lower its debt ratio below that of Italy. by the end of 2021. 2025. Last year, Greece recorded one of the largest debt-to-GDP reductions of any country in the world, while the government’s primary deficit fell by 4.8% of GDP, more than nearly all observers, including S&P, expected.
But the problems are significant. “The elections and a potential change in the composition of the government will be a serious test of how entrenched Greece’s appetite for reforms that stimulate growth and maintain strong financial performance. This is especially important in the context of pressures on the cost of living and the risk of reform fatigue. Reforms that we believe are important to spur Greece’s potential growth, such as the completion of an overhaul of the judiciary and the finalization of the national land registry, remain unfinished.

However, Mr. Tilly concludes, if the next government maintains fiscal discipline as well as pushing for reforms related to the NGEU, restoring the investment rating will remain unresolved.

House appraisal chronicle

Briefly, the first S&P downgrade occurred in January 2009 (from A to A-), followed by a series of successive downgrades of all houses – 10 in total in 2009 and another 9 in 2010, where Greece completely lost its investment rating in December 2010, which she is still trying to recover.

In 2009, the budget deficit (finally) exceeded 36 billion euros and reached 15.7% of GDP, compared to 3%, which was and remains the limit in the EU. S&P warned earlier in the year that “Greece’s public finances are entering a high-deficit recessionary phase.” Under the weight of the economic crisis, Prime Minister Kostas Karamanlis announced early elections in October 2009, when PASOK came to power and told Ecofin that the deficit would not move to the 6% calculated by the previous government, but to 12.5%. . This set off a flurry of house downgrades and a spike in Greek spreads when then-Prime Minister George Papandreou announced on 23 April 2010 that Greece had resorted to a bailout mechanism.

Rating agencies continue to downgrade the ratings to the “selective default” category in which Greece found itself at the beginning of 2012, the category in which it … “entered” and “exited” depending on the development of the economy until the end of 2012. It is noted that in In 2011, the overall downgrade for all houses reached 11, and in November of the same year, after G. Papandreou’s decision to hold a referendum on new measures requested by creditors, Greece was brought to a cooperation government under the leadership of Luca Papademos. This was followed by the adoption of a new (second) memorandum in February 2012, the completion of PSI by reducing the Greek debt in March 2012, and new elections in June with Antonis Samaras sworn in as Prime Minister.

The events have resulted in Greece slightly moving up one notch above C (and B on average) while remaining in the trash.

The rating remained at a low B until early 2015 before downgrading began again, for a total of 17 in the same year, again approaching selective default. Since the autumn of 2014, the Troika has been demanding additional measures, which led to new elections in January 2015, in which SYRIZA became the first party. It was a “nightmare” year as Greece found itself on the verge of a “Grexit” with closed banks, closed markets and capital controls and finally completed the third memorandum.

In 2016, the houses took a wait-and-see approach before embarking on limited and minor upgrades to ‘B’ level in 2017. The withdrawal from the memorandum in August 2018 led to a new promotion of Greece to the double B category, in which it remains to this day.