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Greece tries to move forward

The country’s huge budget deficit and stagnant growth have spooked ratings agencies and investors, already unsettled by the Dubai debacle. But Athens-based bankers have faith in their new government’s ability to bring the eurozone’s black sheep back into the fold. Phil Moore reports.

IT’S A SURE sign of a disjointed market when investors welcome news of a sovereign downgrade. But that’s exactly what happened when, as 2009 drew to a close, Moody’s Investors Service cut its rating for Greece by just one notch, from A1 to A2. In previous weeks, both Fitch and Standard & Poor’s had placed Greece at the triple-B level. Moody’s maintenance of that one single-A rating meant that Greek government bonds would still be acceptable as collateral at the European Central Bank – crucial for the country’s banks as they coped with liquidity concerns and a fast-deteriorating economy.

Investors breathed a sigh of relief. Government bond prices jumped and the stock market rose. Hopefully, the worst of the news was out of the way – and Greek banks could start to look forward.

That process actually began in October, when Greece’s electorate very firmly gave the discredited government of the New Democracy party its marching orders, returning George Papandreou’s Panhellenic Socialists (Pasok) to power after five years of conservative rule.

Economic analysts drew comfort from the election result, which gave the new government a clear majority with 160 out of 300 seats in parliament.

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