On June 14, 2010, Moody’s – the last of all the rating agencies and a month after it had entered into a Memorandum – dropped Greece‘s rating to the “junk” category. Fifteen years past, exposed internationally for maintaining confidence in the Greek economy when it shouldn’t have.

The credibility shock to Moody’s was huge. As of midnight yesterday, however, even the most skeptical – and rightly so – of Greece’s ratings agency upgraded the Greek economy officially to investment grade. Thus, there is no longer any international rating agency that classifies Greece in the ‘junk’ category. This has not happened since 2009, when a current high school student was perhaps not even born yet…

Thus ended the most “black” and dramatic period in the country’s post-war economic history, with unemployment soaring and rock-bottom incomes.

But that is all in the past. The most important thing of all today is that, even in the midst of the international turmoil where markets are seeking safe haven (e.g. in gold with astronomical prices up to $3,000/oz) another report by a major foreign house speaks of – and gives impetus to – further economic growth.

As highlighted in the Moody’s Report:

– “Greece is now more resilient to potential future shocks.”

– “Public finances have improved faster than expected”

– “Based on the government’s policies, the institutional improvements that are bearing fruit and the stable political environment, we expect Greece to continue to run significant primary surpluses that will steadily reduce its high debt.”

What is Greece at risk from, according to the Report?

Only if the country takes steps back on reforms or, if everything we knew is shattered and the EU finds itself in crisis or war without US support.

“Thirsty” for Greece

Although expected, the new upgrade was very important because it paves the way for trillions of dollars in new “money” that follows Moody’s, such as for the world’s largest insurance funds, whose strict statutes prohibit low-rated investments.

However, market confidence was a given even before Moody’s:

– Scope and DBRS recently upgraded Greece even higher (with a second “within” investment grade upgrade),

– just last Wednesday, the markets “honored” the reissue of Greek government bonds (15-year and 30-year bonds) with record-breaking offers of more than 56 billion euros (!), of which the government finally met the demand for only…3 billion.

“What the American saw”

The difficulty now for Greece is to hold on and avoid setbacks.

US-based Moody’s warns that it could again downgrade Greece to the “junk” category:

– if there is a reversal of the policy implemented in recent years,

– if there is a regression in structural macroeconomic or fiscal reforms,

– if there is a deterioration in the country’s fiscal position, the health of the banking sector,

– if evidence is found that the reforms being implemented are not delivering the growth and fiscal benefits that the House currently expects.

This is, however, what all the Rating Agencies have so far said in their Reports.

But for the first time Moody’s is now warning of another risk above, showing how everything around is changing:

– a marked deterioration of geopolitical risks in Europe may occur; and

– there are signs of weakened support from key military allies, but especially from the United States.

Can do better

Moody’s signals a return to stability, rating Greece at Baa3 with a stable outlook. But it also shows the path it needs to take to climb even higher, leaving behind countries like Bulgaria or Romania – which it has just now reached again.

According to Moody’s a new upgrade of Greece “could result” if it saw:

– A likelihood of an increase in growth momentum over the medium term, above its current expectations

– improvements in areas such as the efficiency of the judicial system

– accelerated implementation of reforms

– faster debt reduction that significantly exceeds current expectations.