Financial Times: Greece’s ‘Biggest Comeback’ – From Trash to Investment Grade

Financial Times: Greece’s ‘Biggest Comeback’ – From Trash to Investment Grade

After more than a decade of rescue programs and painful austerity measures, Greece has recovered significantly, notes the “Financial Times” in a detailed report on the evolution of the Greek economy.

As the article published yesterday Sunday in the British newspaper characteristically mentions, more than a decade after bailout programs and austerity measures brought Greece to the brink of bankruptcy and exit from the eurozone , the country has recovered and is on the threshold of recovering its investment quality.

Budget: Full throttle for more growth and primary surplus

Fitch: Strong improvement in the country’s public finances – Greece is approaching investment grade

International ratings agency Standard & Poor’s recently changed its outlook for the country from stable to positive, while a full rating upgrade would put Greece at triple B minus, the agency’s lowest rating. rating.

“Greece’s return to investment grade will be the biggest recovery in the European financial system”

Many, including Bank of Greece Governor Giannis Stournaras, expect the upgrade to take place after the May 21 election, as long as the new government continues reforms and maintains political stability.

Fokion Karavias, chief executive of Greek bank Eurobank, said the return to investment grade – with which not only the government’s borrowing costs but also national banks and corporations are inextricably linked – will mark “the most great recovery of the European financial sector system”.

“Many voices have been raised 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 be incapable to reduce its stock of bad debts. In the end, nothing is impossible,” said Mr. Karavias.

Greece: From ‘Europe’s problem child’ to a ‘growth explosion’

After years of being “Europe’s problem child”, Greece’s growth is accelerating. The economy has seen one of the strongest recoveries since the Covid-19 pandemic, with GDP growing at 8.4% in 2021 and 5.9% last year.

Eurostat figures show that Greece recorded a primary budget surplus of 0.1% in 2022. The amount of non-performing loans on banks’ balance sheets fell from around 50% in 2016 to 7%.

Economists at ratings agencies and investment banks such as Goldman Sachs expect Greece to continue to outperform the rest of Europe this year and next.

Greece is on the verge of regaining its investment quality

Today, we are a long way from February 2012, when the country’s credit rating approached its lowest rating – that of selective default – following a debt crisis that threatened to tear the eurozone.

The lack of investment grade status led to higher funding costs and for some time prevented the European Central Bank from buying Greek debt under its multi-year bond purchase programs. trillions of euros to stabilize the bloc’s economy.

It’s been hard to get to a point where joining the investment-grade club — a status granted by S&P to just 70 countries — would be a real possibility.

The mark of a painful decade

In its report, the Financial Times refers at length to Greece’s difficult economic decade, noting that painful austerity measures have left their mark on a country that now has one of the highest relative poverty rates in the world. ‘European Union.

At €832 per month, the country’s minimum wage is €30 lower than it was in 2010. In real terms, the average wage is around 25% lower than it was 12 years ago .

Down by almost a quarter, Greek production remains well below pre-crisis levels.

Giorgos Chouliarakis, economic adviser to the governor of the Greek central bank, believes that returning to the top “requires another decade”, while only “a serious multi-year investment plan in human capital, basic infrastructure and health” will boost wages.

“Many households are feeling the pressure of rising prices for food, energy and other basic goods,” said Nikos Vettas, IOBE’s chief executive.

Exports, the success story of the Greek economy

The reforms not only stabilized a plummeting economy, but also led to real improvements. The main one is trade: between 2010 and 2021, the country’s goods exports increased by 90%, compared to 42% for the euro zone as a whole.

“Greece’s biggest success story over the past decade has been exports,” said Dimitris Malliaropoulos, chief economist at Greece’s central bank. However, a major factor was the “outright” pay cuts, he added. “The price of this improvement was high.”

But now it’s starting to pay off. After hitting 206% during the pandemic, Greece’s public debt as a percentage of GDP fell to 171% last year, its lowest level since 2012, representing one of the fastest rates of deleveraging in the world. It should continue to fall in 2023, helped by high inflation.

The Greek economy is on a good but difficult path

“In principle, the winners from high inflation are those with lots of inflation-linked income and few corresponding liabilities,” said Chris Jeffery, head of inflation and rates strategy at Legal & General Investment. Management. Furthermore, the country is 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% over the past two years. Nominal debt only increased by 4%. A further significant improvement in the debt-to-GDP ratio is likely this year, soon leading to an upgrade to investment grade,” Jeffrey said.

The pandemic helped boost incomes, forcing people to use online payments more as stores closed.

“Economic activity that was in the dark is now being exposed and taxed,” Mr Malliaropoulos said.

Development of investments and constructions, strong recovery of tourism

Greece has also benefited from an increase in foreign direct investment, which rose 50% last year to its highest level since records began in 2002.

The EU’s Post-Pandemic Recovery Fund is to provide 30.5 billion euros in grants and loans to Greece by 2026, an amount equal to 18% of current GDP.

Tourism – the largest sector of the Greek economy, accounting for around a fifth of GDP – rebounded last year, reaching 97% of pre-pandemic levels.

Foreigners not only spend vacations in the country, but also invest heavily in real estate. Property sales to foreign buyers were almost four times higher last year than in 2007, reaching almost 2 billion euros.

Construction, the industry hardest hit during the financial crisis, is also booming.

Haris Kokosalakis, whose construction activity collapsed in 2012, said demand from overseas buyers now offered “hope” for a sustained recovery.

“Without our foreign customers, I would be very pessimistic. I still fear that we are back in 2007 ready to face another problem.”

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