Moody’s hurled a thunderbolt yesterday evening. Counter to the usual cycle Moody’s raised the Greek rating extraordinarily by two notches to “B3” – the outlook remains positive. The upgrade itself comes as less of a surprise than its chosen timing. The regular review of Greece’s credit rating would have been due on 30 March. However, in exceptional circumstances the agencies are permitted to deviate from the previously announced schedule. In the past the agencies have mainly made use of this exceptional opportunity in order to make extraordinary downgrades. The fact that Moody’s saw fit to upgrade Greece early is likely to please the government in Athens all the more.
Moody’s gives the three most important material reasons for the decision. It says that Greece has carried out substantial fiscal and institutional improvements. These are contributing to recovery both in the economy as a whole and in the banking sector. In concrete terms Moody’s points to the increase in the primary surplus to more than 2% of GDP. It said that it expected the country’s debt ratio to fall to 174% in the coming year. As a second reason the agency cites the favourable prospects of Greece successfully concluding the current third assistance programme in August. Furthermore, Moody’s does not expect the country to need an additional assistance programme. On the one hand Greece is building up a liquidity cushion, and on the other hand the bondholders are ready to accept debt servicing relief measures, says Moody’s. The agency’s third reason is that the risk of a repeated payment default by the issuer has fallen substantially. Moody’s makes further rating upgrades dependent on whether growth accelerates faster than expected and/or whether Athens manages to reduce public debt more quickly than assumed.