More than a decade after bailouts and austerity measures brought Greece back from the brink of bankruptcy and eurozone exit, the country has bounced back and is poised to regain investment grade status.
S&P recently changed its outlook for the country from stable to positive. A full upgrade would put Greece at triple B-minus, the ratings agency’s lowest investment-grade rating.
Fitch: Greece is closer to investment grade after the primary surplus
The Financial Times points this out in its extensive report on the Greek economy entitled “Greece’s “greatest return”: from trash to Investment Grade”.
Many, including the country’s central bank governor, expect the update to come after the May 21 election if the new government continues reforms and maintains political stability.
The ruling conservative New Democracy party has a five to six point lead in opinion polls over Syriza, the radical left-wing opposition party, they write, adding that ND is expected to struggle to form a government after the first round. of the elections, considering that it is more probable that it will be repeated in July.
Eurobank Chief Executive Fokion Karavias said a return to investment grade, to which not only government borrowing costs but also local lenders and companies are tied, would mark “the biggest recovery in the European financial system”. .
“There were many voices calling for Greece’s exit from the Eurozone. They argued that the country’s debt would never be sustainable, that it would be impossible to run primary surpluses and that its banking system would not be able to reduce its stock of bad loans,” he said. In the end, nothing is impossible.”
After years as Europe’s problem child, growth in Greece is now taking off, the FT editor notes, adding that the economy has made one of the strongest recoveries since the pandemic, with GDP growth of 8.4 % in 2021 and 5.9% last year.
Citing Eurostat data, he highlights that Greece posted a primary budget surplus of 0.1% in 2022. Non-performing loans at banks fell from more than 50% in 2016 to 7%.
Economists at rating agencies and investment banks like Goldman Sachs expect Greece to continue to outperform other eurozone countries this year and next.
Gone are the hard times
It is a far cry from February 2012, when the country’s credit rating moved close to the lowest rating (selective default) after a debt crisis threatened to tear the eurozone apart, the FT reports.
The lack of investment-grade status resulted in higher funding costs and meant that, for a time, the ECB was unable to buy Greek debt as part of its multi-trillion-euro bond-buying programs to stabilize the eurozone economy. .
It has been hard to get to a point where rejoining the investment-grade club, a status granted by S&P to just 70 countries, would be a real possibility.
The footprint of the crisis
The FT refers emphatically to previous years, speaking of painful austerity measures that have left their mark on a country which, it says, now has one of the highest relative poverty rates in the EU.
At 832 euros a month, the country’s minimum wage is 30 euros lower than it was in 2010. In real terms, the average wage is about a quarter less than 12 years ago, they report.
After contracting by almost a quarter from its peak to its trough, Greece’s output remains well below pre-crisis levels.
According to Giorgos Chouliarakis, economic adviser to the governor of the Bank of Greece, a return to the top “needs another decade” while only “a serious multi-year investment plan in human capital, basic infrastructure and health services” will boost wages. .
“Many households are feeling the pressure of higher prices for food, energy and other basic goods,” said Nikos Vettas, director general of IOBE, an Athens-based economic think tank.
The success story of exports and wage reduction
The reforms not only stabilized a free-falling economy but also led to some real improvements. Chief among these is trade: Between 2010 and 2021, the country’s exports of goods grew by 90 percent, compared with 42 percent for the euro area as a whole.
“Greece’s biggest success story in the last decade has been exports,” said Dimitris Malliaropoulos, chief economist at the Bank of Greece. However, a major factor was the “absolute” wage cuts, he added. “The price of this improvement was high.”
The exit of the tunnel
“The pain is now starting to pay off,” the FT editor writes.
As he points out, after rising to 206% during the pandemic, Greek public debt as a percentage of GDP fell to 171% last year, its lowest level since 2012 and one of the fastest rates of debt reduction in the world. It is expected to continue declining in 2023, helped by high inflation, she estimates.
“In principle, the winners from high inflation are those with a lot of inflation-linked income and not a lot of inflation-linked liabilities,” said Chris Jeffrey, head of inflation and rate strategy at Legal & General Investment Management. The country is also relatively less exposed to higher regional borrowing costs, as the average maturity of its debt is 20 years, compared to seven years for the average advanced economy.
“Greece’s nominal GDP has now increased by more than 25% in the last two years. Its nominal debt has risen by just 4%,” the economist said. “Another big improvement [στον λόγο χρέους προς ΑΕΠ] this year is likely to bring an upgrade to investment grade soon,” he added.
The pandemic helped boost government revenue as citizens were forced to use electronic payments when stores closed. “Financial activity that was in the dark has now been exposed and taxed,” Dimitris Malliaropoulos told the FT.
Greece also benefited from an increase in foreign direct investment, which increased by 50%, to its highest level since 2002 recorded in statistics.
Of course, in an extensive report on the pillars of the Greek economy, tourism could not be missing, for which the FT editor highlights the jump of 2022 reaching 97% of the levels prior to the pandemic.
Foreigners are not only vacationing in the country, but are investing heavily in property with property sales to foreign buyers nearly four times higher in 2022 than in 2007, reaching nearly €2 billion.
construction is booming
Construction, the industry hardest hit during the financial crisis, is also booming. Haris Kokosalakis, whose construction business collapsed in 2012, said demand from foreign buyers had given him a modicum of “hope” for a sustainable recovery.
“If it weren’t for our foreign clients, I would be very pessimistic,” he said. “I still fear that we are back in 2007, ready to face another accident.”