Does Greece Deserve a B- ?

S&P Lifts Rating on Greece to 18-Month High –

Greece Rating Upgraded From ‘Selective Default’ by S&P.

Euro-Area Services, Manufacturing Fall Less Than Forecast – Bloomberg.

S&P upgrades Greece’s rating from selective default | Reuters.

S&P boosts Greece’s credit rating – Dec. 18, 2012.

Greek Bonds Rally After S&P Upgrade –

The S&P raised Greece’s rating several steps from “selective default” to B-.  The list of other countries rated the same or worse than Greece is small: Argentina, Belarus, Belize, Grenada, Jamaica and Pakistan. All of these countries have had issues repaying bondholders and comprise a bad boy club of debtor nations.

Greece belongs in this club with two selective defaults within the last nine months, but in several key metrics the Hellenic Republic is in a class by itself.

Greece has the highest total Debt to GDP ratio:

LR Club Debt to GDP 2012

No other country is in its league for total debt except AA rated Japan, not included in the chart. Greece also has the worst short-term situation with the largest budget deficit in 2012:

LR Club Budget Balance 2012

No other member of the bad boy club is in Greece’s league. Once again, we have to leave the chart to find another country in as poor shape as Greece, Japan.

A country may improve its debt position significantly by sustained economic growth. Unfortunately, Greek GDP is still shrinking at a depressionary pace:

LR Club GDP Growth

Argentina and Jamaica are basically stagnant, but Greece GDP plunged almost 7% in 2012. This is not the recipe for getting out of trouble.

Greece does poorly when compared to the lowest rated countries in world. Belize and Grenada are even rated one step lower, CCC+, than Greece but have better economic numbers.

The S&P gives its rationale for such a lofty rating for such a damaged country:

The upgrade reflects our view of the strong determination of European Economic and Monetary Union (euro zone) member states to preserve Greek membership in the euro zone.

The S&P’s language indicates that Greek debt has an implicit guarantee issued by the rest of the eurozone particularly since the ECB is accepting Greek debt as collateral. The ratings agencies and the troika may know that Greece’s debt is implicitly guaranteed, but do European taxpayers?

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