Greece is slowly restoring its credit-worthiness. Very slowly. The firm Fitch’s raised the country’s long-term assessment one notch to ‘B-‘ on May 14, removing it from being at risk of default, citing progress in balancing the country’s finances and improving its trade competitiveness.
The Greek economy is rebalancing: clear progress has been made towards eliminating twin fiscal and current account deficits…” said Fitch, adding that the outlook for the rating was stable. T
he country’s 240 billion euro ($310 billion) international bailout, sovereign debt relief and an easing of fiscal targets Greece must meet have lifted Central Bank measures of economic sentiment to a three-year high “and the risk of Eurozone exit has receded,” Fitch noted.
It said Greece’s economic adjustment program was on track and that the current government appeared committed to undertaking necessary fiscal consolidation and structural reforms.
Nevertheless the ratings agency noted that “the price has been high in terms of lost output and rising unemployment and the capacity for recovery is still in doubt.” Fitch warned “tangible economic recovery remains elusive, while resistance to reform is high, underlining the continuing risks to implementation.” Unemployment is running at 27 percent and the country’s economy has contracted by 22 percent since 2008.
Fitch noted that the Greek’s have achieved one of the most ambitious fiscal consolidations in recent times, and estimates that it has recovered about 80 percent of its lost competitiveness, although at the cost of big pay cuts and reduction of the minimum wage and phasing out of collective bargaining rights, putting many workers at the mercy of employers.
And while Greece’s public debt sustainability is still far from assured, being dependent on the country’s economic recovery, Fitch said “the degree of default risk for private creditors, encapsulated in the previous ‘CCC’ rating, has subsided.”
It said previous debt restructurings have reduced the percentage of private creditors’ share in Greek debt to the point (15 percent excluding short-term debt) that there would be little financial gain of further write-downs.
“Barring Greek exit from the euro, Fitch could envisage official creditors bearing the brunt of any future default, albeit the political considerations of any such move may not be straightforward,” it added.
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