Fitch Ratings officials appeared optimistic about Greece’s economic outlook ahead of this Friday’s credit rating report on the country during an online debate last week on the impact the pandemic has had on the assessments and the sustainability of eurozone member-states’ finances.
The agency’s analysts stressed that what matters most is not debt levels but debt momentum, and mainly the cost of servicing it, which in Greece as well as the rest of the bloc is low. Fitch also considers the resources of the Next Generation EU fund among Greece’s weapons, as long as they are “wisely” utilized, and the constant support of the European Central Bank’s emergency bond buying program (PEPP).
Debt momentum, Fitch officials explained, is affected by various factors, such as gross domestic product growth, the primary budget surplus and the level of interest payment as a ratio of GDP – i.e. the cost of debt servicing.
For years the ratings agency has argued that the concentration of fiscal revenues on a eurozone level would help member-states to face shocks that could have different effects on each country – such as this pandemic – while maintaining some degree of fiscal discipline.
Such initiatives could have a favorable impact on the assessment of countries such as Greece in the long run, the Fitch analysts noted.
The Next Generation EU fund follows that reasoning and could be a catalyst in country assessments.
The resources to flow into eurozone states as of this year will be in the form of grants, so they will not affect their debt levels; if utilized efficiently they will provide a major contribution to growth, according to the rating agency’s analysts.
However, it was stressed that country ratings upgrades will depend on a variety of factors: for example, how the European Union resources are utilized and their efficiency in promoting an extensive recovery in the medium term.
A key question, Fitch officials note, is whether certain countries such as Greece will be able to channel those funds effectively as well as rapidly, and whether that will then lead to an increase in investments.