The AAA-ization of Greek Debt

Abstract

The often lambasted bailout loans granted by Europe and the IMF to Greece since 2010 have allowed the Greek government to enjoy effective funding costs not just similar but even much better than those of the highest quality sovereign debtors. Thanks to the bailouts and their incredibly generous financial terms, Greece has de facto been transformed into a better-than-AAA credit, even as the country was otherwise bankrupt and had lost all access to capital markets. Once we factor in all the assistance received from the official sector lenders (the Eurozone in particular), Greece’s effective interest payments-to-gross debt ratio was just 1.94% in 2015, much lower than the average for a group of eleven of the highest-rated sovereign debtors. Germany, so many times criticized for her role in the bailouts and by far the biggest lender, was in contrast facing a 2.19% interest rate. During the 2013-2015 period, during which Euro creditors granted particularly substantial interest rate cuts and cash transfers, Greece’s funding cost was the second lowest in the sample and an incredible 70 basis points lower than the average. The “Troika” of institutions behind the rescue loans took a country in financial ruins whose credit rating was mercilessly downgraded all the way to junk debt status and not only showered it with vast amounts of money but also offered the conditions that made possible the miracle of a CCC borrower acting as a AAA one. Funny then to have seen and still see so many so ruthlessly critical of the bailouts.

Keywords: Greek Debt, Greek Bailouts, Troika