by Natassa Stasinou 

Political risk in Greece is now completely out of the equation for markets and rating agencies. The sweeping victory of New Democracy party and the prospect of an outright majority after the second elections, on June 25, has boosted Greek stocks and bonds. Rating agencies welcomed the outcome as a sign of political stability. The question remains whether this means that they are ready to upgrade Greece to investment grade. S&P has signaled that this will come within the next 12 months. The next review by the rating agency is scheduled on October 20. Scope Ratings, which has a scheduled assessment on August 4, described the election result as "credit positive", although it commented that the economic challenges persist and leave no room for the country to deviate from the path of reforms and fiscal prudence. DBRS notes that the election result signals policy continuity and a reform path that could promote economic growth. Moody's has also sent a positive signal. 

 

On June 9, that is, before we even go to the second polls, we await the verdict of Fitch. Despite ND's overwhelming dominance, analysts are holding out some slim hopes for a summer "gift" by Fitch. They believe that Fitch will wait for the final outcome of the election process before deciding an upgrade. 

 

Large investment houses believe in any case that 2023 will be the year in which we say goodbye to "junk". In a statement to Naftemporki.gr, Athanasios Vamvakidis, Managing Director, Global Head G10 FX Strategy of Bank of America- Merrill Lynch says: "The market is reacting very positively to the result of the Greek elections, seeing a strong and powerful government after the second election showdown in a few weeks". He notes that Greece should insist on the reform agenda, which will ensure fiscal stability and allow the release of funds from the Recovery Fund. He believes that Greece could be upgraded to investment grade before the end of this year. 

 

Filippo Taddei, executive director of Goldman Sachs, told Naftemporiki: "The outcome of the general election is important in so far it addresses one remaining but fundamental layer of policy uncertainty. Finalizing the implementation of the European Recovery Fund and securing long-run growth through investment is a long due change in Europe, and Greece in particular. Regardless of the specific outcome of the general election, a commitment to back the recovery Fund and facilitate the long due structural transformation of the economy is, in the short term, possibly the most important factor to watch for. Greece is set to receive a long lasting European fiscal support in excess of 3% of GDP per year, centered on investment and prolonged until 2026. Such support provides the country with the opportunity, although not the guarantee, to deal with its long standing investment gap, at almost 7% of GDP on a yearly basis. At the end of 2022, Greece was still almost 25% below 2008 in terms of GDP level. Strengthening investment led growth is possibly the easiest way for the Greek economy to regain investment grade for its sovereign debt". 

 

Dennis Shen, director, Sovereign and Public Sector for Scope Ratings, told Naftemporiki:  Sunday’s election yielded a strong result – and at this stage we know with meaningful certainty New Democracy will be re-elected to government for a further four years. However, at this stage, it is not yet decided what type of government. After the election round one, one needs to assume this government is more likely than not to reflect an outright majority – representing the most credit-positive scenario, maintaining comparative policy continuity and most significantly reducing the likelihood of political instability. But as New Democracy gained a 41% vote share during round one, outperforming expectations but nevertheless only several percentage points above the outright-majority threshold for the second round, it is still feasible this vote share underperforms during round two owing to complacency, necessitating a coalition agreement with centre-left PASOK. This second scenario would present greater challenges as far as a shift of policy making moderately towards the left compared against the past four years and comparatively more significant political instability."