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03/12/2016

Greece set for major credit rating upgrade

Euro & Finance

Greece set for major credit rating upgrade

The Athens Stock Exchange [Reuters]

In the event of a “positive” first review of Greece’s third bailout programme, its struggling economy will be upgraded by rating agencies, a capital market specialist has told EurActiv.

The highly anticipated first assessment of the Greek bailout, agreed on by Athens and international creditors last July, is due to be completed in early February.

“In the event of a positive assessment and confirmation of the growth prospects for the second semester of 2016, the Greek economy will be upgraded up to 2 grades by the rating agencies within two or four weeks,” EurActiv was informed.

Return to markets

International rating agencies currently paint a “dark” picture of the Greek economy.

Moody’s rates Greece at Caa3, Fitch at CCC, and Standard and Poor’s at CCC +.

A positive review and a ratings upgrade is expected to significantly boost Greek bonds.

“As a result, the yield of 2-year bond maturing in 2016 will fall from 8.2% to 4% and the 10-year bond from 8.33% to 5%,” the source explained, adding:

“This will restore the yield curve of the bonds and bring Greece closer to a return to the markets, with a view to issuing a 3-year bond in summer 2016.”

“The devil is in the detail”

A prerequisite for the first review of Greece’s €86 billion bailout is the reform of country’s ailing pension system.

The Syriza-led government has submitted a reform plan for the country’s pension system that would cut future benefits, but the opposition parties oppose it ahead of talks with official lenders this month.

>>Read: Greece’s proposed pension reforms get no backing from opposition

Greece’s Economy Minister, Giorgos Stathakis, said over the weekend that government’s majority “will be unaffected” by the bill, and that it would pass through parliament.

“The [Greek] government has proved that it can complete the negotiation cycles in a reliable way,” Stathakis stated.

Giorgos Katrougkalos, Minister of Labour, Social Insurance and Social Solidarity, recently said that country’s lenders accept the “architecture of the reform plan”, warning at the same time that “the devil is in the detail”.

Background

Eurozone leaders reached an agreement on a programme to save Greece from bankruptcy after 17-hour talks on 13 July.

>>Read: Eurozone reaches ‘laborious’ tentative deal on Greece

This is the third rescue programme for Greece in five years. It will be managed by the European Stability Mechanism (ESM), the eurozone permanent crisis resolution fund that was initially set up five years ago in an effort to save Athens from bankruptcy.

Timeline

  • Early February: First review of Greece's third bailout programme is expected.