Moody’s Holds Greece at Baa3 – Cautionary Message to Mitsotakis

Stable Rating, But No Upgrade

Credit rating agency Moody’s has affirmed Greece’s credit rating at Baa3 with a stable outlook, declining to upgrade the country despite strong fiscal performance and reform progress. While acknowledging improvements, the agency emphasizes a critical lack of structural reforms and strategic planning to sustain growth once EU Recovery and Resilience Facility (RRF) funds are exhausted.

The “stable” outlook is a signal of confidence — but also a warning. Without further reform, there will be no further rating upgrade.

What’s Supporting the Current Rating

Moody’s highlights several key strengths:

• A strong track record of reform, particularly in governance and institutions
• High absorption of EU RRF funds (almost 60% disbursed already)
• A healthier banking sector, with a sharp drop in non-performing loans (NPLs)
• A favorable debt structure and large cash buffer
• A primary budget surplus of 4.8% of GDP in 2024 (double the original target)

Greece has moved from being seen as a “high-risk” economy to a “credible policy executor”.

The Shadows Ahead

Despite this progress, Moody’s expresses serious concerns that prevent an upgrade:

• Lack of a post-RRF growth strategy
• Structural demographic pressures threatening long-term productivity
• Slow pace of institutional reforms
• Very high public debt, despite its recent decline

Growth is expected to slow significantly after RRF funding peaks. Social dissatisfaction and political uncertainty are additional red flags.

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Political Risk on the Radar

Moody’s explicitly flags political risk as a factor:

• PM Kyriakos Mitsotakis faces a balancing act between maintaining fiscal discipline and responding to public pressure from those affected by reforms and the high cost of living.
• Backtracking on reforms for short-term political gain could undermine investor confidence.

While reforms may appear successful on paper, many citizens feel left behind – a risk that could turn political.

Why Greece Was Not Upgraded

The following reasons explain the decision to keep Greece at Baa3:

• Insufficient progress on structural reforms, including tax system, justice, and labor market
• Limited institutional capacity to sustain long-term reforms
• Persistent demographic and productivity challenges
• High public debt, still among the highest in the world

What Could Lead to an Upgrade

An upgrade from Baa3 could occur if:

• Greece accelerates institutional and structural reforms
• Mid-term growth prospects exceed current projections
• Public debt declines faster than expected and in a sustainable manner

What Could Trigger a Downgrade

Conversely, the following could lead to a downgrade:

• Reversal of past reforms under political pressure
• Deterioration of public finances, especially if combined with banking sector instability
• Geopolitical instability, especially if it weakens support from key allies like the U.S.
• Failure to sustain investor confidence, particularly if growth falters post-RRF

How Greece Compares to Other Agencies

Key Takeaway: Trust Earned, Not Guaranteed

Moody’s sends a clear message: Greece has regained trust, but maintaining it requires consistent reform, political stability, and a long-term growth plan.

The government’s margin for populist or politically motivated backsliding is limited, especially as global markets grow increasingly cautious.

Reform success must translate into real social impact. Otherwise, fiscal progress risks being seen as fragile or short-lived.

Source: pagenews.gr