Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or at minimum each six months in the cases of sovereign, sub-sovereign and supranational organisation issuers.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key ratings assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review of the Hellenic Republic (BB+/Stable; S-3/Stable) on 1 February 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated Rating Report accompanying this review, click here.

Greece’s long-term ratings of BB+/Stable are underpinned by multiple credit strengths: First, enhancements of European institutional support since the Covid-19 crisis, in form of supportive monetary and fiscal policy measures. These include innovations of ECB asset purchases programmes and temporary relaxation of collateral framework requirements, such as waivers that have during the crisis allowed for inclusion of Greek sovereign bond instruments under facilities. In December 2021’s conclusions of the European Central Bank, net asset purchases under the Pandemic Emergency Purchase Programme (PEPP) were announced to be discontinued from end-March 2022. Nevertheless, market interventions under PEPP were extended for a longer periodicity via capacity to resume PEPP net purchases at any time with flexibility of such purchases across time, asset classes and jurisdictions to counter adverse shocks as associated with the pandemic. February’s ECB Governing Council raised likelihood of a faster normalisation of monetary accommodation. ECB measures, together with EU fiscal support, after endorsement of a EUR 30.5bn Recovery and Resilience Plan for Greece, anchor market access, supporting debt sustainability and creating fiscal space for the Greek government to expend on public investment. Furthermore, a strengthened profile of government debt represents a credit strength, resulting from supportive debt measures of euro-area creditors, still moderate global interest-rate conditions as well as proactive public debt management. Thirdly, structural reform policies have curtailed high non-performing loan (NPL) ratios and enhanced banking-system stability while policies have been placed in motion to mobilise private-sector investment, easing bottlenecks as associated with weaknesses of the banking system and structurally low investment, boosting an economic recovery (growth estimated of 4.4% in 2022 before 2.5% in 2023, after an estimated 9.3% recovery of 2021).

However, Greece’s credit ratings are challenged by: i) a very high government debt stock, representing a continued contingent vulnerability as markets reappraise risk as associated with elevated inflation, gradual normalisation of central-bank policies and debt sustainability of vulnerable euro-area sovereign borrowers; ii) banking-sector fragilities as associated with still high NPL stocks on domestic bank balance sheets, despite substantive reductions being undertaken, and continued risk surrounding sovereign-bank interconnections; and iii) structural weaknesses in the form of tepid medium-run nominal growth potential, high unemployment, limited economic diversification, rigidities in the labour market and a weak external sector.

The Stable Outlook represents Scope’s opinion that risks to the sovereign ratings are balanced.

The ratings/Outlooks could be upgraded if, individually or collectively: i) Eurosystem support for Greek debt instruments were additionally reinforced as the crisis eases; ii) fiscal consolidation and economic recovery see continuation of a strong and sustained downward debt trajectory; iii) structural economic and external imbalances are curtailed, raising medium-run growth potential and strengthening macroeconomic sustainability; and/or iv) banking-sector risks were further reduced, enhancing credit provision to the private sector.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) Eurosystem support for Greek debt were curtailed, even under adverse market scenarios; ii) fiscal policies were to remain loose for longer or a fresh economic downturn materialises, impeding a trajectory of reduction of public debt; iii) reform commitment weakens, such as after conclusion of the post-bailout enhanced surveillance programme or after elections, dampening an outlook for the curtailment of macroeconomic imbalances and undermining contingent European support; and/or iv) banking sector risks re-intensify, raising risk of crystallisation of contingent liabilities onto the sovereign balance sheet.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director.

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