Moody’s Investors Service’s optimism that Greece’s current pace of reforms will lead to an upgrade of the nation’s debt isn’t backed by evidence that a recovery is taking hold, according to Matrix Corporate Capital LLP.
“I remain skeptical,” Bill Blain, co-head of fixed income at London-based investment bank Matrix, said in a note to clients today. “I’d prefer to see the evidence -- clear proof Greek tax revenues are increasing rather than tax-amnesties, growth to pay off debt, a bottom-up overhaul of state welfare and spending cuts being enacted long-term, an end to pork-barrel politics, and visible signs of recovery.”
Moody’s said yesterday it was “impressed” with Greece’s progress, just three months after cutting the nation’s credit rating to junk as it struggled to rein in the euro region’s second-biggest budget deficit. The risk to the country’s sovereign grade “is to the upside” if the reforms continue, Anthony Thomas, a London-based senior analyst at the ratings company, said at a credit conference in Warsaw.
In its decision to cut Greece’s rating to Ba1 from A3, Moody’s cited “substantial” risks to economic growth from the austerity measures tied to a 110 billion-euro ($152 billion) aid package from the European Union and the International Monetary Fund. Finance Minister George Papaconstantinou said on Oct. 4 that the country’s budget deficit will narrow to 7 percent of economic output in 2011, about half of last year’s level, after the government cut spending and raised taxes to secure the EU-led rescue and avoid default.
“For anyone who isn’t a complete imbecile, its blindingly obvious Greece’s recovery might just be being massively talked up by those who have a vested interest in us believing everything in Europe is tickety-boo,” Blain wrote. “Greece’s problems haven’t suddenly been fixed over the last 12 months since the magnitude of the crisis became apparent. At best the problems have been identified -- but they aren’t solved.”