'Regulatory Deregulation and Tax Cuts' as the Solution... Greece Recovers Investment Grade Credit Rating After 10 Years

Greece, once dubbed the 'problem child of Europe' and pushed to the brink of national default, has made a remarkable recovery by regaining an 'investment grade' rating after more than a decade.

Global credit rating agency S&P announced on the night of the 20th (local time) that it would upgrade Greece's long- and short-term foreign currency and local currency credit ratings from the previous 'BB+ (speculative grade)' to 'BBB- (investment grade)'?a one-notch increase. The rating outlook remains 'stable.' Since the fiscal crisis in 2010 caused the investment grade to fall to 'BB+,' and even dropped to 'Selective Default (SD)' at one point, Greece has now re-entered investment grade territory after more than ten years.

Costis Hatzidakis, Greek Minister of Finance. [Image source=AP Yonhap News]

This marks the first rating upgrade among the three major global rating agencies. S&P gave a positive assessment of Greece's national debt and fiscal improvement. S&P stated, "Since the 2009 debt crisis, significant progress has been made in addressing economic and fiscal imbalances," adding, "Economic structural reforms are expected to support solid economic growth and continued reduction of national debt from this year through 2026." S&P projects Greece's debt-to-GDP ratio to fall to 146% by the end of the year.

Hit hard by the 2008 global financial crisis, Greece was unable to manage its fiscal difficulties and received bailout packages three times from the International Monetary Fund (IMF) and the European Central Bank (ECB) starting in 2010. After a total of 290 billion euros in bailouts and stringent austerity measures, Greece exited the bailout program in August 2018. However, it remained the only Eurozone (20 countries using the euro) member state to retain a 'non-investment grade' credit rating, a lingering stigma.

The European Stability Mechanism (ESM) described the upgrade as "a great achievement and a game changer for Greece" in a statement. ESM emphasized, "Greece will maintain investor confidence as a strong and stable investment-grade country," and urged the Greek government to "sustain the momentum of economic reforms and carefully manage fiscal policies."

Greece's GDP growth rate is expected to reach 2.3% this year and 3% next year, more than double the Eurozone average. S&P noted, "There is potential for another credit rating upgrade if the debt-to-GDP ratio continues to decline," but cautioned, "Political pressures that could hinder maintaining a primary fiscal surplus should be carefully managed."

S&P also praised the re-election of the ruling New Democracy party led by Prime Minister Kyriakos Mitsotakis in the second general election in June, stating it would ensure continuity and advancement of Greece's economic structural reforms. Mitsotakis has pursued deregulation, tax cuts, and privatization under the banner of economic stimulus, aiming to reform the economy damaged by big government and excessive fiscal spending.

Earlier, Canadian credit rating agency DBRS Morningstar upgraded Greece's credit rating to 'BBB (investment grade)' last month. Among the global big three rating agencies, Fitch and Moody's currently rate Greece just below investment grade. Foreign media assess that Fitch and Moody's are likely to follow suit in upgrading Greece's credit rating based on improvements in the economy and debt sustainability. Fitch is scheduled to update its rating on Greece on December 1.

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