Many like to think that markets are treating Greece unfairly when it comes to its creditworthiness.
Speculators are being blamed for making the situation look worse than it is and ratings agencies are being demonized.
But here’s why the whole concept of Greece being treated unfairly is pure baloney.
Greece’s credit rating is still in the ‘investment grade’ category, despite the nation’s massive financial problems and mass protests from a society that thinks it doesn’t have to tighten the belt when money runs out.
Meanwhile, on the other side of the world, there is Indonesia.
It has a giant, young population with its most productive years ahead. Its GDP is growing rapidly, and the country weathered the recent crisis remarkably well. It is rich in natural resources and rides the rise of China. Moreover, it has a debt to GDP ratio of just 30% according to the CIA World Factbook… while Greece is at 109%. Most importantly, the trends for each nation are likely to go in opposite directions due to opposite GDP growth prospects.
Yet get this… Indonesia isn’t even considered ‘investment grade’ yet by ratings agencies. The nation is still trying to receive the lofty credit rating of Greece:
Indonesia should be able to reach investment grade within one year, Finance Minister Sri Mulyani Indrawati said on Tuesday, in a more confident assessment than many analysts who still see obstacles for South-east Asia’s biggest economy.
‘We are still optimistic that this can be achieved within one year,’ Indrawati told foreign correspondents. ‘There is no signal we are going to depart from that path . . . I am optimistic (it will be) one or at most two years. I am expecting it within one year.’
Indonesia is far from perfect and has tons of problems like many nations, and yes we are aware of the 1997 Asian crisis, but it is in far better shape financially than Greece.
Thus if anything, Greece is being treated far too leniently by credit markets. The only thing that accords the nation a shred of confidence from credit markets is the prospect of a bailout from the Eurozone. Otherwise, markets would be dumping its debt and asking for highly punitive interest rates. That’s because it should have a credit rating far below Indonesia, and nowhere near investment grade, if judged on its own merits alone.
Which means that Greece’s ridiculously strong credit rating is proof of the fact that markets expect the nation to get a free ride from its Euro relatives. Beyond that ‘trust funder’ factor — long Indonesia, short Greece.