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Greece’s credit rating has finally returned to investment-grade status after more than a decade since the debt crisis and three international bailouts.
DBRS Morningstar upgraded Athens’ creditworthiness to triple B, marking the beginning of expected upgrades from “junk” territory.
The agency justified the upgrade by emphasizing its confidence in Greece’s commitment to fiscal responsibility and its ability to maintain a downward trend in the public debt ratio. DBRS also projected a primary fiscal surplus of 1.1% this year and 2.1% in 2024.
Although not one of the “big three” agencies, DBRS’s ratings hold significant influence within the euro area as they are recognized by the European Central Bank. This return to investment-grade status reflects Greece’s restoration in the eyes of investors after narrowly avoiding bankruptcy and an exit from the eurozone.
“Greece’s upgrade to investment grade serves as a seal of approval, firmly leaving the crisis years behind us,” stated Alex Patelis, chief economic adviser to Prime Minister Kyriakos Mitsotakis. “We cannot be complacent and will strive to meet and exceed these new expectations.”
This upgrade brings much-needed positive news for Greece, which has recently been plagued by devastating wildfires and severe flooding, causing extensive damage and raising concerns about climate change’s impact on extreme weather events.
“At a time when our thoughts are with the victims of these unprecedented natural disasters and their families, Greece’s return to investment-grade status is a crucial development,” said Greece’s Finance Minister Kostis Hatzidakis.
Since the conclusion of its bailout program in 2018, Greece has regained access to the bond market and reduced its debt-to-GDP ratio to 171% last year. In the second quarter of 2023, the country achieved the second-fastest GDP growth in the EU.
DBRS attributed the improved creditworthiness to strengthened cooperation with the European Union and euro system institutions, a result of past fiscal consolidation and reforms.
DBRS’s upgrade also grants Greek debt eligibility for the ECB’s asset purchase programs and reinvestment of matured bonds on the central bank’s balance sheet. Additionally, it enhances Greek banks’ access to wholesale funding due to a broader collateral base.
Greece previously received a waiver from the ECB during the early stages of the Covid-19 pandemic, allowing the purchase of debt with a non-investment grade rating. However, this waiver was set to expire at the end of 2024.
“With this upgrade, Greece now has full access to ECB liquidity,” explained Dimitris Malliaropulos, chief economist of the Greek central bank. “This will positively impact Greek bond yields.”
Investors do not anticipate significant market reaction when trading resumes on Monday, as Greek bonds already trade at investment-grade levels. Greek 10-year debt currently yields 4%, lower than the 4.3% yield for Italy, a country with investment-grade status. Yield decreases when bond prices rise.
However, this upgrade brings Greek bonds closer to inclusion in investment-grade indices, which typically require ratings from at least one of the three leading agencies – S&P, Moody’s, and Fitch. This would expand the potential investor base for Greek government debt, particularly those prohibited from investing in junk-rated bonds due to mandate restrictions.
DBRS’s decision further supports speculation that other rating agencies will follow suit, according to Richard McGuire, head of rates strategy at Rabobank.
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