Sovereign Credit Ratings and the Fundamentals of the Greek Economy

We discuss the factors behind sovereign credit ratings and reproduce their quantitative compo-nent, focusing on the case of Greece. The sovereign credit rating of Greece is still lower than the investment grade threshold. However, some of the fundamentals of the Greek economy are shown to be better than the average of the rating category it belongs to at present (BB) and better even than higher rating categories. Based on the reproduction of the score component of sovereign credit ratings of the three major Credit Rating Agencies, we show that an improvement in the institu-tional factors of the Greek economy to the level of the early 2000s can lead to a significant increase in Greece’s score, thus contributing to an upgrade to the investment grade category