Why rating agencies are once again in favor of Greece

As it seems, 2013 will bring loans with better terms and lower interest rates for households and businesses. Following the decision by Standard & Poor's to upgrade the Greek economy and Mario Draghi’s that the ECB accept anew the bonds issued by the Greek government as collateral to provide liquidity to Greek banks, it is estimated that the financial sector will be aided significantly, perhaps before its recapitalization with 25 billion euros.

Greek finance minister Yannis Stournaras appeared very pleased by the developments and speaking in THEMA, he said, «these decisions mean that both the climate and the psychology have changed. Even on a budgetary level you will see that 2012 will end better than expected.»

Stournaras has no illusions about the difficult road that lies ahead. «Now we have reached the bottom and what remains is to start rising. But to take the next tranche of 35 billion euros for 2013 and 2014 we must first do a series of actions such as raising the electricity rates and reducing the price of medicines.»

He reveals that if Greece achieves everything it has promised (i.e. surplus budget), then the debt and the interest rates of the Troika loans will be reduced even further.

With Draghi’s decision for acceptance of Greek bonds by the European Central Bank (ECB), Greek banks again acquire access to cheaper borrowing from ECB, thus abandoning the «expensive mechanism to provide liquidity» (Emergency Liquidity Assistance - ELA) that worked at the Bank of Greece. It is estimated that the borrowing rate from thev ECB is lower by approximately 2% compared with that of the ELA mechanism. This means that from now on banks will not borrow at an interest rate of 3% but at 0.75% to 1%.

Today the cost of loans is particularly high. Companies like Titan borrow at a rate that even reaches 9%, creating asphyxiation even for those companies that are purely export oriented.

As a top Troika executive in Brussels says in THEMA, «there are currently two types of companies in the Eurozone in terms of cost of money. For example, even though the euro interest rate between two competing firms is at 0.75%, one based in Norway has 1.5% cost of money and one based in Greece 9%, it is easy to understand that the future looks brighter for the company in Norway. The same thing applies to Germany, Holland, Denmark, etc., because in these countries the loan interest is 2% (0,5% Euribor + 1% interest-profit for the bank).»

With the ECB decision, Greek banks that hold about 50 billion euros of bank bonds guaranteed by the Greek State will have a liquidity break using these bonds for financing from the ECB by means of low interest loans. Sources in the Greek banking sector argue that effective use by the banks will start in January.

The upgrade from Standard & Poor's caused euphoria in the secondary bond market too, and as a result the 10-year yield fell to 11.75% and the margin of the corresponding German title is at 10.32%. The Greek bond prices are now at 48% from 33% a few days earlier. The Greek spreads had reached their lowest point in March 2012, at 3,800 units, and are currently at 1,000 points. Even the Greek Stock Exchange on Wednesday and Thursday recorded a robust growth of over 5%. The rating agency's decision sparked positive reactions to markets and favorable comments in the international press after a long period of continuous negative developments.