An awkward success for Greece: investment grade won back amidst natural calamities

by Antonis D. Papagiannidis

It is quite strange an experience for a country to get back its investment grade rating – lost in 2009, at the onset of Greece’s financial debacle – when it is reeling under successive shocks of raging wildfires and devastating floods. Still, it just right now that Greece’s sovereigns recorded the belated success of getting a BBB (low) rating, with stable trend, by DBRS Morningstar – one of the four rating agencies officially recognized by ECB for its own credit assessment to gauge collateral haircuts and the suchlike. The ESM, which holds some 240 bn euros of Greek debt, was prompt in tweeting “Greece achieved a mile-stone worth celebrating [..] due to the remarkable efforts by governments and the people of Greece”. A sign of relief was heard on part of the Greek authorities: in earlier pronouncements on the Greek economy, DBRS had noted the importance of the country and its economy attaining the criteria of investment grade in a sustainable manner…

As already noted, the Greek authorities have opted for prudent moves on the fiscal front, to supplement the promise of political stability along with the country’s growth potential expected to remain higher than 2% (2.3% according to the current Stability Programme), eargely based on investments supported by NGEU funds as well as by tourism receipts.

The natural calamities that shook Greece – wildfires throughout the summer from the southern island of Rhodes to the north Dadia forest/a unique natural reserve; then literally unprecedented floods in centrally-located Thessaly in early September – will take long to assess as to their full impact. Estimates of the extent of destroyed infrastructure, of homes submerged or crumbling down, of agricultural land rendered barren (for how long?) and crops destroyed (to what extent?) range all the way from 0.5% to 2% of GDP. The social disruption brought about by the sense of helplessness experienced by local populations, but also by the wider feeling that whatever civil protection mechanisms exist are by and large useless when confronted with extreme situations (extreme indeed, but as the climate crisis proceeds all the more to be expected) sap the will to go on. This does not translate directly into GDP data, but constitutes the core of economic resiliency.

Were one to start factoring into the equation reconstruction costs and the burden of even planning for resilient infrastructures, then timely implementing such plans, one should really prepare for quite a tough time for the Greek economy – whatever the credit rating it may obtain by S&P and Fitch as the fall of 2023 proceeds. Budgetary constraints will make their drag felt anew.

EU emergency support will be forthcoming – notwithstanding the fact that Slovenia has had already access the EU Solidarity Fund Mechanism at the tune of 400 mio euros to cope with recent floods (just days ago)  – with European Commission Ursula von der Leyen duly visiting and being pohotographed along Slovenian worthies. Finite resources are always that: finite.

Overall, a tough patch ahead for Greece just when the going was supposed to be getting easier.