Greece was raised to B- from CCC and given a stable outlook, according to a statement from Fitch in London today. The ratings company said there is a “semblance of political and social stability” with the government showing more ownership over its adjustment program and a lower risk of exit from the euro area.
“The Greek economy is rebalancing,” Fitch said. “Clear progress has been made toward eliminating twin fiscal and current account deficits and ‘internal devaluation’ has at last begun to take hold.”
Fitch’s rating of Greece six levels below investment grade is in line with the assessment of Standard & Poor’s, and contrasts with Moody’s Investors Service, which puts the country 11 notches below the junk threshold. Investors often ignore ratings, evidenced by the rally in Treasuries after the U.S. lost its top grade at S&P in 2011.
Greece’s so-called Economic Adjustment Program is “on track” and the increase in its ratio of public debt to gross domestic product should moderate to peak at around 180 percent in 2013-14, Fitch said.
“Sovereign debt service now appears more secure than the size of the debt stock would otherwise imply,” it said. “Even so, public debt sustainability is still far from assured and will be dependent on economic recovery and a sustained primary fiscal surplus.”
Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook last year, according to data compiled by Bloomberg published in December. Investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by Standard and Poor’s. That’s worse than the longer-term average of 47 percent, based on more than 300 changes since 1974.
The stable outlook on Greece “reflects Fitch’s assessment that upside and downside risks to the rating are more broadly balanced than in the recent past,” the company said. “The degree of default risk for private creditors, encapsulated in the previous ’CCC’ rating, has subsided.”
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