The decision of the European Central Bank supports the sustainability of the Greek public debt, according to a report by the credit rating agency Fitch.
The ECB ‘s announcement that it will be able to continue buying Greek bonds until the end of 2024 reduces the risk of a sharp rise in government borrowing costs as the emergency pandemic program (PEPP) comes to an end, the house notes.
The ECB confirmed last Thursday that it would stop net bond purchases under the PEPP by the end of March 2022, but extended the one-year reinvestment period for bonds maturing by one year until the end of 2024.
The ECB also said that in the event of pandemic-related market pressures, PEPP reinvestments “could be flexibly adjusted for time, asset forms and territories”, including Greek bonds “beyond of the reinvestment of those that expire “.
Fitch notes that under the PEPP, the ECB had bought Greek bonds worth € 34.9 billion by the end of November, which is close to Greece’s share of the ECB (2%) of the total PEPP (1 , 85 trillion euros).
These markets, he adds, contributed to the reduction of Greek debt interest rates, with the yield on 10-year securities falling to about 1.3% from over 2% in May 2020.
He also notes that the sustainability of the Greek debt is supported by other factors, such as the high cash reserve which is projected to be close to 18% of GDP at the end of the year and which, according to Fitch estimates, would cover Debt service in 2022. The cost of servicing the Greek debt (in absolute terms and compared to other countries that have a corresponding debt) is low and the maturity times of the securities are manageable.
In addition, Fitch notes, the Greek authorities have managed the repayment schedule prudently, estimating that a recent liability management exercise reduced repayments in the period 2023-2025 by about 1.1 billion euros. The average duration of Greek debt is one of the longest for government bonds, at about 19 years.
Fitch previously estimated that a large, permanent increase in market interest rates would increase the debt ratio, but only by about 4.5 percentage points in five years.
Despite these factors that lighten its weight, the very high public debt of Greece is a weakness for its debt, the house says, estimating that the debt-to-GDP ratio in 2021 decreased – from the high level of 206.3 % of GDP in 2020 – at 197.3%, a level that is the third highest among the countries rated by Fitch.
“Lower deficits and sustainable economic growth will support debt reduction,” Fitch said, forecasting GDP growth of 8.3% this year and will continue in 2023 and 2024 at 4.1% and 3.6%, respectively. , respectively, as the use of the Recovery Fund resources will accelerate, but the debt will remain high, just below 188% of GDP in 2023.
Fitch also believes that the ECB will continue to be flexible in order to avoid a sharp impact on the financing and liquidity of Greek banks, while noting that it believes that the ECB can extend the exceptional acceptance of Greek government bonds as collateral. and beyond June.
The financing and liquidity profiles of Greek banks have improved structurally in recent years, according to the house, boosted by the healthy growth of their customers’ deposits and their better access to lending.
The next assessment of the Greek debt by Fitch will take place on January 14. “Greater confidence in the return of government debt / GDP to a steadily declining trend after the COVID-19 shock, continued improvement in the asset quality of systemically important banks and better medium-term growth and performance prospects could lead to a positive assessment “, The house reports.
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