Greece Returned to Investment Grade by S&P After Over a Decade

Sotiris Nikas and Paul Tugwell
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(Bloomberg) -- Greece’s credit rating was raised to investment grade by S&P Global Ratings — the first such move by one of the big three assessors since the country was shaken by a debt crisis more than a decade ago.

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Friday’s decision puts Greece at BBB- with a stable outlook. S&P joins Japan’s Rating and Investment Information Inc., Germany’s Scope Ratings and Canada’s DBRS Morningstar in lifting the nation out of junk territory. All did so following June’s resounding re-election of reformist Prime Minister Kyriakos Mitsotakis.

Mitsotakis has pledged to maintain his business-friendly policies, while making clear to markets that he won’t jeopardize budgetary discipline, despite additional expenditure during the summer due to wildfires. He’s also promised to reduce the share of debt to below 140% of output by 2027 from a high of 206% in 2020.

“Significant budgetary consolidation has placed Greece’s fiscal trajectory onto a firmly improving track,” S&P said in a statement. “Supported by a very rapid economic recovery, the Greek government has been able to regularly outperform its own budgetary targets despite gradually increasing social transfers.”

Greece’s economy will expand 2.3% in 2023 and 3% in 2024, according to government projections — much better than most of its European peers. Tourism continues to be a major contributor and is headed for another record year.

While widely expected, S&P’s move opens the door for further bond gains if Fitch Ratings or Moody’s follow through. Greece needs to be a minimum of BBB- or equivalent from two of the three major rating companies to be re-admitted to investment-grade-only bond indexes, an inclusion that would face the nation with a multitrillion-dollar investment pool.

The anticipation of a rating upgrade has led Greece to eke out gains in one of the worst years on record for global debt markets. Its bonds are the best performers in the euro area this year.

In another sign of investor confidence, yields on 10-year Greek debt are now more than half a percentage point lower than Italy’s equivalent. The gap has never been that wide.

A separate S&P review of Italy on Friday kept that country’s rating at BBB, one notch above Greece’s.

The state’s divestment from local lenders is the latest sign that Greece’s economy is gradually returning to normality. The Hellenic Financial Stability Fund concluded the sale of its stake in Eurobank Ergasias Services and Holdings SA in early October, while it plans to sell a 20% holding in National Bank of Greece next month.

Read More: Greece Said to Ready 20% Stake Sale in National Bank Next Month

“Greece has started to sell down its various stakes in the banking system,” S&P said. Given the very strong stock performance of Greek banks in 2023, along with wider clear improvements in system-wide asset quality “we view the plans to offload remaining stakes by 2025 as broadly credible.”

Moody’s recently upgraded Greece by two notches to one step below investment grade. Fitch Ratings is the last of the big three firms to update its review following the summer’s national elections. Its verdict is scheduled for Dec. 1.

--With assistance from Aline Oyamada and Hari Govind.

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