Morningstar DBRS Confirms the Hellenic Republic at BBB, Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed the Hellenic Republic's (Greece) Long-Term Foreign and Local Currency - Issuer Ratings at BBB. At the same time, Morningstar DBRS confirmed Greece's Short-Term Foreign and Local Currency - Issuer Ratings at R-2 (high). The trends on all ratings remain Stable.

KEY CREDIT RATING CONSIDERATIONS
The Stable trend reflects Morningstar DBRS' view that the near-term risks to the credit ratings are balanced. The Greek economy grew by 2.3% in 2024, a performance significantly above the 0.9% average growth for the entire euro area, and the European Commission (EC) projects a similar expansion in Greece this year. Strong domestic demand has been the main driver to Greek GDP growth, primarily from healthy employment growth and EU-funded investments. Strong economic expansion together with recurrent primary fiscal surpluses have led to a steady decline in the debt to GDP ratio. The EC expects debt to fall to 141% of GDP by 2026, from 164% recorded in 2023. No different than its European peers, however, the performance of Greece's economy is in part subject to external threats. Any additional deterioration in the geopolitical or global trade environment that weakens external demand would inevitably weigh on Greece exports and affect the economy at large.

Greece's BBB credit ratings are underpinned by the country's credible policy framework, and its membership of the European Union (EU) and euro area. Successive Greek governments have implemented key reforms that strengthened governance, improved the country's business environment, and underpinned debt sustainability. The strong political commitment across all major political parties to prudent fiscal policy reinforces the country's credit quality. The IMF projects the primary fiscal surplus to average 2.4% of GDP through the end of the decade and for the public debt ratio to reach 125% by 2030. Greece's credit ratings are nevertheless constrained by the still high public debt ratio, the small size of its economy, and the persistently large current account deficit.

CREDIT RATING DRIVERS
Morningstar DBRS could upgrade the credit ratings if one or a combination of the following occur: (1) further material reduction in the public debt ratio supported by sustained primary surpluses; or (2) continued implementation of reforms that boost investment, thereby improving longer-term growth prospects.

Morningstar DBRS could downgrade the credit ratings if one or a combination of the following occur: (1) a prolonged weakening of fiscal discipline or a materialization of contingent liabilities that puts the public debt ratio on a sustained upward trend; (2) a reversal in structural reforms; or (3) a significant deterioration in the Greek external position.

CREDIT RATING RATIONALE

Economic Performance to Remain Strong Over the Forecast Period

Greece's real GDP expanded by 2.3% in 2023 and 2024 and the EC expects similar results over the next two years. Robust momentum of the Greek economy is largely fuelled by private consumption and investment. Employment growth has been steady, and the unemployment rate fell to 8.0% in July 2025, from 9.8% a year earlier. Improved domestic demand, repair to the banking sector, and effective implementation of the Recovery and Resilience Plan (RRP) support capital formation. The country is among the top EU performers when it comes to reaching key RRP milestones and absorbing RRP funds - an envelope of EUR 36.6 billion (16% of GDP) in grants and loans. Numerous reforms implemented in previous years have enhanced Greece's competitiveness, and successful implementation of the RRP will help Greece improve its growth prospects. These factors explain the positive qualitative adjustment to the Economic Structure and Performance building block assessment.

Downside risk to Greece's economic outlook depends in large part on external developments. These include vulnerabilities to extreme weather events, geopolitical conflict, and protectionist global trade policy. Though Greece has limited direct export exposure to the U.S., the rise in cross-border tariffs is expected to weigh on economic activity across Europe, with indirect effects on Greece's small and open economy. Additional trade disruption would negatively affect Greece's export-oriented industries, and another rapid rise in energy or other commodity prices would create additional inflationary pressure. Harmonized consumer prices in Greece increased by 3.7% year-over-year in July 2025. Inflation has been on an upward trend over the last few months, driven primarily by increases in the costs of electricity and services. These price drivers are likely to persist, and the EC expects inflation to remain above the 2% target over its forecast horizon.

Greece has a Wide Current Account Deficit and High External Liabilities

Greece's large trade deficit and its elevated negative Net International Investment Position (NIIP) weigh on the country's external position. The current account balance was -6.9% of GDP in 2024 and the NIIP was -130.4% of GDP, according to the IMF. The EC projects the current account deficit to average 8.1% over the next two years, pointing to large dissaving of the Greek economy and to the high import concentration of investments. Despite the large external imbalances, DBRS Morningstar consider Greece's external position to be more resilient now than in the past. The country has improved its external competitiveness, has become a more open economy, and its exports of goods and services in terms of GDP have doubled since 2010. Likewise, supportive inflows of FDI and EU funds help mitigate funding risks associated with elevated current account deficits. We expect a medium-term narrowing of the trade deficit as the country's export capacity improves and as more domestic renewable energy production comes online. The IMF forecasts the current account deficit to narrow to 4.1% by 2029. While the negative NIIP is still elevated, having improved by over 30pp of GDP since 2020, a large portion of the external liability position is made up of public debt owed to official creditors with low interest costs and long maturities. These factors explain the positive qualitative adjustment to the Balance of Payments building block assessment.

Drastic Fiscal Repair Appears Durable

Greece's fiscal position surprised to the upside in 2024. The headline fiscal position recorded a 1.3% of GDP surplus last year, and the primary fiscal surplus (headline net of interest costs) reached 4.8% of GDP. The government had expected a small deficit to the headline position. A confluence of reasons helps explain the surprise to public accounts, including slower current expenditures, and stronger than anticipated direct tax revenues and social security contributions from healthy employment growth and economic activity. The effect of elevated inflation on VAT collection and fiscal reforms such as measures to combat tax evasion and undeclared work contributed to the large increase in revenues. Actual receipts for the year were 9.5% higher than what was anticipated in the 2024 budget. Though the results for this year are unlikely to remain as strong - given recently announced social spending commitments and the increases in defence spending - Morningstar DBRS expects the improved fiscal position to be supported by structural changes. The EC projects the headline fiscal surplus will decline to 0.7% of GDP this year and improve again to 1.4% in 2026. These factors explain the positive qualitative adjustment to the Fiscal Management and Policy building block assessment.

Greece's Debt Ratio Remains Among the Highest in the Euro Area

General government debt in Greece was 153.6% of GDP in 2024, by far the highest debt burden in Europe and well above the 87.4% of GDP average for the euro area. In principle, high debt narrows the government's ability to respond to unforeseen shocks, to accommodate higher funding costs, or to address increasing age-related or defence expenditures. In practice, risks to debt sustainability stemming from Greece's large debt burden are mitigated by several factors. To begin, Greece's debt structure is very favourable. 100% of its debt is held at fixed rates after swaps, the weighted-average maturity is very high (around 18.7 years as of June 2025), and around 74% of the debt is held by the official sector. The Greek treasury also holds sizable cash reserves around EUR 40 billion (roughly 16% of GDP, or three years of gross funding needs), notwithstanding early repayment of IMF and GLF loans (Greek Loan Facility likely prepaid ahead of schedule).

Public debt dynamics have been on a steep downward trend, due to high nominal GDP growth, healthy fiscal surpluses, and stock-flow adjustments from early official sector debt repayments. Having peaked just under 210% in 2020, the EC expects the ratio to approach 140% by 2026, and the IMF projects under current assumptions for the ratio to fall under 130% by 2029. These favourable public debt dynamics make Greece's large outstanding debt burden less susceptible to market volatility and have translated into higher investor confidence. The spread on Greece's 10-year bond yield over German Bunds narrowed to around 75 basis points in July 2025, a marked shift from the 200 basis points spread during the summer of 2022. These factors underpin our positive qualitative adjustment in the Debt and Liquidity building block assessment.

Persistent Reduction in Banking Sector Legacy Vulnerabilities

The Greek banking sector has strengthened over the last few years. Higher loan growth and structurally higher interest rates have resulted in healthy bank profitability. The system is also more resilient. Recent shocks, including the energy crisis and the rapid rise in interest rates, did not reverse the steady improvement in asset quality. Sales and securitizations of loans under the Hercules Asset Protection Scheme helped reduce the average gross ratio for nonperforming exposures to 2.9% for the largest Greek banks in June 2025, down from 32% in 2020. Banks further protect against systemic risk by maintaining strong capital ratios, evident by the results of the recent EBA 2025 stress test. The average CET1 capital ratio for the largest Greek banks was 16.0% in June 2025, from 11.8% 2021. Capital depletion of Greek banks in the EBA's baseline and adverse scenarios was considerably less than for the average of the participating European banks. The quality of bank capital will continue to improve as Deferred Tax Assets held by banks decline faster than previously expected.

Structural Reforms Are High on the Policy Agenda, But Execution Risks Remain

Recent developments, including the result of the European Election last year, point to narrower support for the governing coalition. As the next parliamentary elections draw closer, there is a risk that recent reform momentum loses pace. However, the government led by New Democracy and Prime Minister Kyriakos Mistotakis retains a strong majority in parliament. This provides political stability and continuity and helps Greece fulfill the targets and milestones of its RRP, the aim of which is to boost economic resilience. The implementation of reforms and investments in Greece 2.0 remains a key priority for the Greek government and includes addressing weaknesses in the justice system, public administration, and strengthening of the public health system. The government also plans to improve the education system. The improvement in the political environment and the government's commitment to address Greece's long-standing challenges warrant a positive qualitative adjustment to the Political Environment building block assessment.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a significant effect on the credit analysis.

Social (S) Factors

The following Social factors had a significant effect on the credit analysis: Human Capital and Human Rights. Greece's GDP per capita estimated by the IMF at USD 24,716 in 2024 was relatively low compared with its euro system peers. This factor has been considered in the Economic Structure and Performance building block.

Governance (G) Factors

The following Governance factors had a significant effect on the credit analysis: Institutional Strength, Governance, and Transparency. According to the World Bank Worldwide Governance Indicators, in 2023 Greece's rank for both the Rule of Law (57.1 percentile) and for Government Effectiveness (57.6 percentile) were significantly lower than its euro area peers. The following Governance factor had a relevant effect on the credit analysis: Bribery, Corruption, and Political Risk. Greece underperforms the EU average in the Control of Corruption indicator (58.2 percentile rank); however, it has made good progress in recent years improving its score in Transparency International's Corruption Perception Index score to 49 in 2024 from 36 in 2012. Morningstar DBRS notes Greece's institutional strengths associated with euro membership and recent improvements in these areas. These factors have been considered in the Fiscal Management and Policy and Political Environment building blocks.

There were no Environmental factors that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025) https://dbrs.morningstar.com/research/454196.

For more information on the Rating Committee decision, please see the Scorecard Indicators and Building Block Assessments. https://www.dbrsmorningstar.com/research/462032.

EURO AREA RISK CATEGORY: LOW

Notes:
All figures are in euros unless otherwise noted. Public finance statistics reported on a general government basis unless specified.

The principal methodology is the Global Methodology for Rating Sovereign Governments (09 July 2025) https://dbrs.morningstar.com/research/457952. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Monthly Bulletin July 2025, Draft Budgetary Plan - October 2024, Medium-term Fiscal Structural Plan - October 2024), European Commission (Post-Programme Surveillance Report - November 2024, 2024 Commission assessment of Greece's medium-term fiscal-structural plan - November 2024), PDMA (Public Debt bulletin N. 118 - August 2025, Annual Debt Report - June 2025), Bank of Greece (Financial Stability Review - May 2025, Note on the Greek Economy - July 2025), Greece 2.0 National Recovery and Resilience Plan, IMF (World Economic Outlook, April 2025, Greece: 2025 Article IV Consultation Mission, April 2025), IFS, ELSTAT, BIS, World Bank, Eurostat, European Central Bank, EBA, Transparency International and Macrobond. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/462031.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Jason Graffam, Senior Vice President, Global Sovereign & Financial Institution Ratings
Rating Committee Chair: Thomas R. Torgerson, Managing Director, Global Sovereign Ratings
Initial Rating Date: 16 August 2013
Last Rating Date: 07 March 2025

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