New Democracy’s strong results in last Sunday’s elections significantly increase the chance that it will form a government after the repeat elections to be held at the end of June, Moody’s credit rating agency noted on Thursday.
This means that there will be continuity in fiscal and economic policy and is credit positive for Greece’s rating, it added. The rating agency also forecast that Greece will see one of the largest debt reductions globally, with general government debt falling below 150% of GDP in 2025 from 171.3% in 2022, thanks to the prospect of significantly higher nominal GDP growth in the next years.
Maintaining the focus on improving the business environment and banking sector, along with the implementation of milestones and reforms under a national recovery plan, will help support economic growth, Moody’s noted.
Combined with a commitment to fiscal adjustment and an increase in primary surpluses, maintaining the current fiscal and economic policies “improves the prospects for a significant reduction in Greece’s public debt burden,” it said.
It also underlined that the Greek economy recovered strongly after the pandemic, with real GDP growing by 5.9% in 2022 and 8.4% in 2021, after a 9% decline in 2020.
Behind the increasingly narrow choices given to the electorate of Greece, lies the ‘veto’ of the “Big Three”, Standard and Poor’s (S&P), Moody’s, and Fitch Ratings.
Debt to GDP ratio was at 120% when Greece was reduced to junk status and the troika arrived. Moody’s “forecast” that Greece will see government debt falling below 150% of GDP in 2025 from 171.3% in 2022, thanks higher nominal (not real. excludes inflation / cost of living) GDP growth in the next years.
“The market for credit ratings continues to be a large and impenetrable oligopoly dominated by two firms: Moody’s and S&P. And yet credit ratings are still as uninformative as they were before the financial crisis. Simply put, credit ratings remain enormously important but have little or no informational value.” https://corpgov.law.harvard.edu/2017/05/31/whats-still-wrong-with-credit-ratings/
Together they control nearly 95 percent of the credit ratings market. They were in part responsible for the 2007/8 sub-prime global financial and Euro bond crisis and made billions out of saving “too big-to-fail” banks & institutions and various restructuring programes.
“We can’t have private companies, whose primary goal is maximizing profit, behaving like sovereign judges passing down opinions that are binding for disinterested third parties,” argued Thomas Straubhaar, the director of the Hamburg Institute of International Economics, i
Public debt that is deemed too large by the agencies causes investors to drive up interest rates in return for the increased risk of default. This makes economic expansion, such as housing, business growth, and loans, more expensive. Therefore governments look carefully at their ratings and become inclined to follow policies that the “Big three” approve of. Standard traditional macroeconomic polices, that were once available to the electorate, is replaced by banking macroprudence
The more power the electorate has, the more likely the rating agencies will downgrade the country. The downgrade then increases the cost of government borrowing. The more ‘investments’ that the rating agency likes (but can go against the interests of the electorate) the better the rating it gives. In non-oligarchical rating market, a government can ignore the debt as long as the returns (from real investment and economic growth) cover the interest on the repayments. And then, if the debt is mainly owed to its own population, the electorate evaluate the benefits of the government borrowing (eg for health care and education) against this costs. The true measure of economic growth is subjective.