OVERVIEW

Greater policy stability should support Greece's economy and its banks,
while enabling the government to service its moderate stock of commercial
government debt.We think large public infrastructure projects will catalyze private
investment in tourism and logistics, improving Greece's growth
projections.We are revising our outlook on Greece to positive, and affirming our
'B+/B' ratings.The positive outlook reflects a possible upgrade if the authorities
unlock Greece's growth potential by boosting competition in product
markets, bolstering property rights, simplifying bankruptcy procedures,
and improving the enforcement of contracts.
RATING ACTION
On July 20, 2018, S&P Global Ratings revised the outlook on its foreign and
local currency long-term sovereign credit ratings on Greece to positive from
stable. At the same time, we affirmed our 'B+' foreign and local currency
long-term ratings on Greece, as well as our 'B' foreign and local currency
short-term sovereign credit ratings.

OUTLOOK
The positive outlook on Greece reflects the likelihood of an upgrade should
the government implement reforms to broaden the tax base and improve the
business environment, leading to a stronger economic recovery. Another
potential trigger for an upgrade would be a marked reduction in nonperforming
assets in Greece's impaired banking system, alongside the elimination of all
remaining capital controls. Healthier banks could provide credit to the more
productive parts of Greece's critically important small and midsize enterprise
(SME) sector.

We could revise the outlook back to stable if, contrary to our expectations,
there are reversals of previously implemented reforms, or if growth outcomes
are weaker than we expect, restricting Greece's ability to continue fiscal
consolidation, debt reduction, and financial sector restructuring.

RATIONALE
The positive outlook reflects our opinion that Greece's policy predictability
is improving, as are its economic prospects. During 2016 and 2017, the
government ran primary fiscal surpluses while the multiyear recession ended
last year. However, in our view growth policies rather than additional fiscal
measures will be the key determinants of long-term debt sustainability for
Greece. Over the next three years, we project real GDP growth of 2.0%-2.5%.
However, we see potential for stronger outcomes if the government does more to
improve the business environment so as to attract stronger investment inflows
from abroad.

Over the near term, there is room for optimism. We think planned increases to
public spending on key infrastructure projects in transport, including ports
and airports, could contribute to stronger growth by galvanizing private
investments in Greece's most competitive sectors including tourism, shipping,
and logistics. Other sectors such as pharmaceuticals and food processing are
also increasingly shifting their focus to export markets, seen in last year's
13.5% year-on-year increase in exports in euro terms (excluding the value of
ships) versus three consecutive annual declines between 2013 and 2016. Over
the long-term, however, in the absence of reforms to the business environment,
the ability of GDP growth to exceed 3% on a sustained basis appears
constrained, not least by administrative burdens and anti-competitive behavior
across the economy--particularly concentrated in the services sector.

In June, Greece's official creditors agreed to extend maturities and defer

interest payments on €96.9 billion of European Financial Stability Facility
(EFSF) debt (about one-third of Greece's debt stock) for another decade (see "
Long-Term Ratings On Greece Raised To 'B+' On Reduced Sovereign Debt Servicing
Risks; Outlook Stable," June 25, 2018). The Eurogroup also made a conditional
promise to consider further debt relief measures in 2032, subject to Greece's
fiscal progress. In terms of maturity and average interest costs, Greece has
one of the most advantageous debt profiles of all our rated sovereigns. Our
rating pertains to the commercial portion of Greece's central government debt,
which is less than 20% of total Greek debt, or less than 40% of GDP.

The final program disbursement will also provide Greece with a sizable cash
buffer, which we estimate will meet central government debt servicing into
2022. We project that Greece's debt-to-GDP ratio will decline from 2019
onward, aided by a recovery in nominal GDP growth. Even so, given our growth
expectations and our assumption that the primary surplus is likely to settle
at around 2% of GDP by 2023, we don't project gross general government debt to
decline below 100% of GDP until 2030--except under the scenario of outright
debt write-offs.

Were official lenders to consider additional debt relief, for example in the
event of far weaker growth leading to underperformance on fiscal targets, they
could potentially call for private sector involvement (PSI). In our opinion,
this theoretical risk of PSI may limit the maturity of new commercial
financing available to Greece to bonds that expire before 2033 and 2034 that
is, before the EFSF and European Stability Mechanism (ESM) official loans
begin to amortize respectively. Even so, the current refinancing schedule does
not look strenuous, with no single year's redemptions exceeding €11.8 billion
or 6.3% of GDP, excluding Treasury bills. Once Greece graduates from the third
economic adjustment program (the program or the ESM program) in August, it
will also be free to increase the outstanding amount of treasury bills, a
potential source of additional liquidity over and above its sizable cash
buffer.

Institutional and Economic Profile: Greece will exit the ESM program this
year, with an improving growth and labor market outlook
Greece graduates from its ESM program in August 2018, having secured
further debt relief and a sizable cash buffer.Enhanced post-program surveillance will incentivize
reform, albeit on a
less ambitious scale than before.We project that the economy will grow by 2.3% on average over
2018-2021,
with risks to the upside.
Greece's expansive bureaucracy, ineffective judiciary, unequal tax burden, and
weak creditor protections have contributed to prolong its decade-long economic
crisis. Frequent policy shifts, including the decision to hold a referendum on
a desperately needed EU financing line in 2015, both deterred capital inflows
and prompted large deposit outflows from the banks. The cost of these
decisions was a further prolongation of Greece's recession back in 2015,
larger capital requirements for the banks, and, hence, an even higher stock of
public debt.

Since 2015, policy uncertainty has receded. On August 20, the Syriza-led
government will graduate from its third lending program having overseen large
fiscal and external adjustments. Its success sets up the Greek economy well
for a cyclical recovery over the next few years. That said, in the absence of
reforms to its product and services markets, we continue to project 2018-2021
GDP growth of just over 2%, following real GDP growth of 1.4% in 2017. While
this is a welcome turnaround, that pace of recovery does not compare well to
several other EU member states that suffered protracted downturns in
2011-2013, including Croatia, Ireland, Slovenia, and Spain. Over the last few
years, those economies have seen GDP growth of well over 3%, partly reflecting
their far healthier banking systems.

One of the key differences between Greece and its peers is that the Greek
authorities have made limited progress in improving the country's business
environment. While its labor market is arguably highly flexible, Greece
compares poorly to its peers due to its many impediments to competition in its
product and professional services markets, alongside relatively weak property
rights, complex bankruptcy procedures, an inefficient judiciary, and the low
predictability of the enforcement of contracts. As a consequence, net FDI
inflows have only recently improved, and may not be sufficient to fund a more
powerful economic recovery. At the same time, a possible reversal of labor
reform, which could reintroduce collective wage negotiations at the national
level, might weaken the ongoing recovery in the jobs market by reducing
flexibility at the company level to navigate a tough economic situation.
The inability of Greece's banks to finance the economy is weighing on the
strength of the recovery. Without access to working capital, the broader SME
sector--the economy's largest employer--remains in varying degrees of
distress. Private sector default is widespread, including on tax debt, and the
process of declaring bankruptcy is particularly convoluted relative to EU
norms. Despite the recent accelerated progress in reducing the stock of
nonperforming exposures (NPEs), about one-third of banks' loan books are
likely to remain impaired until 2021 even if their ambitious plans to tackle
NPEs succeed. While deposits into the banking system have been
growing--household and corporate deposits grew by 4% in 2017--confidence has
not returned to the extent that would enable a full dismantling of capital
controls in the next year, although controls have been eased. Moreover, the
economy's ability to attract foreign investment to finance growth remains
weak. Complacency in addressing structural problems may not adversely affect
macroeconomic outcomes or sovereign debt servicing ability in the medium term,
but would likely cap Greece's growth prospects in the long run.

In April, the Greek government published a "Growth Strategy for the Future,"
which aims to close what it terms the productivity deficit. The objective is
to move away from wage/price competition toward an economy that increases
value-added in Greece's most advantaged sectors (tourism, agriculture,
pharmaceuticals, shipping, ports, and logistics). The strategy looks at how to
broaden the tax base to reduce high corporate and personal income tax rates,
and to benefit private investment and employment. However, we view the
proposed reintroduction of collective wage negotiations as appearing to
contradict other parts of the strategy, in particular the focus on reducing
informality. One risk is that by reducing employers' flexibility to set pay
packages at the company level, authorities may inadvertently push employers to
hire and pay via informal channels.

After Greece's graduation from the ESM program, it will be subject to

quarterly reviews by its European creditors and the International Monetary
Fund. Ongoing debt relief and the return of profits on Greek bonds held by the
European Central Bank (ECB) and the eurozone's national central banks will be
subject to ongoing compliance with the program's objectives. The use of the
cash buffer for purposes other than debt servicing will have to be agreed with
European institutions. We therefore believe that the Greek authorities will be
strongly incentivized to avoid backtracking markedly on most previously
legislated reforms.

Flexibility and Performance Profile: Greece will continue to run fiscal

surpluses and pay down debt through 2021
We project general government debt will decline from 2019 onward, both in
nominal terms and relative to GDP.The creation of cash buffers via the final ESM program
disbursement will
reduce risks to debt repayments over our four-year forecast horizon.Greek banks made faster
progress in reducing the stock of impaired loans
in 2017.
Greece has established a track record of exceeding budgetary targets via rigid
expenditure controls. This culminated in a primary budgetary surplus of 4% of
GDP last year. During the first five months of 2018, the government has posted
a substantial cash fiscal outperformance.

We project that in 2018-2021 Greece will report general government primary

surpluses that should see gross general government debt decrease to about 160%
of GDP in 2021 from an estimated 184% in 2018. Net of its cash buffers, we
project that net general government debt will decline below 150% of GDP in
2021. Even in nominal terms, we forecast gross general government debt to
decline from 2019, in line with the central government amortization schedule
and our expectation of headline fiscal surpluses. We include commercial bond
issuance in our projections, noting the authorities' desire to build up the
yield curve. However, we do not include in our calculations any use of cash
buffers to prepay official loans or buy back outstanding commercial debt.

We project lower primary surpluses than targeted because we don't rule out the
possibility of a more flexible approach from Greece's creditors toward its
compliance with the highly ambitious and potentially self-defeating
medium-term primary surplus target of 3.5% of GDP. Greece has run primary
surpluses of nearly 4% in both 2016 and 2017, well over target. Although
revenues grew, a large part of the adjustment was due to spending restraints.
Progress in broadening the tax base, and reducing evasion particularly by the
self-employed, has been mixed at best. While the headline consolidation
progress has been dramatic, it is notable that key components of spending on
human capital, particularly on education and health, have been cut sharply to
below European averages since 2008.

Despite the size of its debt, at 1.7% the average cost of servicing this debt
is significantly lower than the average cost of refinancing for the majority
of sovereigns rated in the 'B' categories. We anticipate that, even with
increasing commercial debt issuance, the proportion of commercial debt will
remain less than 20% of total general government debt through year-end 2021.
We therefore expect a gradual reduction in interest costs relative to
government revenues. We estimate the average remaining term of Greece's debt
at over 18 years, although this is set to increase further with the
implementation of the debt relief measures granted in June.

In 2017, Greek banks accelerated progress on reducing their NPE stocks,

moderately outperforming the operational target set by the Bank of Greece.
While NPEs still constitute nearly one-half of systemwide loans, in absolute
terms domestic NPEs reduced by nearly €8.5 billion. Initiatives to tackle the
high stock of NPEs are underway, including the implementation of out-of-court
restructuring, the development of a secondary market, and electronic auctions.
We think, however, that write-offs are likely to remain one of the most
important means of reducing these exposures over the next few years.

The large stock of NPEs constrains the effective transmission of ECB monetary
policy into the Greek economy, in our opinion. We note that price trends
continue to differ in Greece from the rest of the eurozone. For instance,
throughout 2018, inflation has continued to lag the eurozone average. With the
exception of January, inflation in Greece has been below 1% (measured as
12-month average increase) for 2018 to date.

Over the past year, Greece's systemically important banks have issued covered
bonds--like the sovereign, this was their first market foray since 2014. From
January to May this year, the banks continued to reduce their reliance on
official ECB financing, including on the more costly emergency liquidity
assistance. An uptick in deposits has helped, as have repurchase transactions
with international banks. Financing remains predominantly short term, though.
With Greece graduating from the ESM program, its banks are likely to lose the
waiver that allows them to access regular ECB financing using Greek government
bonds as collateral. Given that this financing is relatively small (about €4
billion) we do not anticipate a disruption to the banks' funding from the loss
of this waiver.

Greece has had a significant adjustment in its external deficit. The current
account narrowed to 0.8% of GDP in 2017, from a deficit of nearly 14.5% in
2008, with much of the adjustment coming via significant import compression.
In 2017, despite a widening of the trade deficit, prompted by a higher oil
deficit and import growth, the overall current account deficit narrowed thanks
to the higher surplus on the services account, owing predominantly to the
strong growth in tourism receipts. We project the current account surplus will
widen slightly over our four-year forecast period with increased imports from
strengthening domestic demand.

KEY STATISTICS

Table 1
Greece Selected Indicators
€ mil. 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
ECONOMIC INDICATORS (%)
Nominal GDP (bil. LC) 191 181 179 176 174 178 183 188 195 203
Nominal GDP (bil. $) 246 240 237 196 193 201 219 237 244 253
GDP per capita (000s $) 22.2 21.8 21.7 18.0 17.9 18.6 20.4 22.0 22.7 23.6
Real GDP growth (7.3) (3.2) 0.7 (0.3) (0.2) 1.4 2.0 2.2 2.4 2.5
Real GDP per capita growth (7.0) (2.5) 1.4 0.3 0.4 1.5 2.1 2.3 2.5 2.6
Real investment growth (23.5) (8.4) (4.7) (0.3) 1.6 9.6 6.5 6.0 5.5 5.0
Investment/GDP 12.8 11.6 11.9 9.8 10.6 11.7 12.3 12.9 13.4 13.9
Savings/GDP 9.0 9.6 10.3 9.6 9.5 10.9 11.4 11.9 12.3 12.8
Exports/GDP 28.7 30.4 32.4 31.7 30.5 33.2 34.0 34.8 35.6 36.4
Real exports growth 1.2 1.5 7.7 3.1 (1.8) 6.8 4.0 4.5 4.5 4.5
Unemployment rate 24.5 27.5 26.5 24.9 23.6 21.5 20.0 19.5 18.5 17.5
EXTERNAL INDICATORS (%)
Current account balance/GDP (3.8) (2.0) (1.6) (0.2) (1.1) (0.8) (0.9) (1.0) (1.1) (1.1)
Current account balance/CARs (11.5) (5.6) (4.2) (0.7) (3.3) (2.2) (2.5) (2.8) (2.8) (2.9)
CARs/GDP 33.3 36.6 38.5 35.0 32.8 36.2 36.9 37.3 37.8 38.3
Trade balance/GDP (11.0) (11.5) (12.5) (9.8) (9.5) (10.3) (10.7) (10.9) (10.9) (11.0)
Net FDI/GDP 0.4 1.5 (0.1) (0.2) 2.4 1.7 1.8 2.0 2.5 2.5
Net portfolio equity inflow/GDP (52.2) (3.6) (3.9) (4.7) (5.5) 11.3 0.0 2.0 1.0 1.0
Gross external financing needs/CARs
454.9 410.0 350.9 380.9 397.2 330.8 291.2 272.1 265.4 258.0
plus usable reserves
Narrow net external debt/CARs 512.3 492.9 403.5 493.7 494.5 478.5 452.2 418.3 393.5 372.5
Narrow net external debt/CAPs 459.4 466.8 387.2 490.5 478.8 468.2 441.4 407.0 382.6 362.0
Net external liabilities/CARs 357.4 370.4 312.9 382.3 404.1 413.8 399.5 380.8 367.9 357.3
Net external liabilities/CAPs 320.5 350.8 300.2 379.8 391.3 404.9 390.0 370.4 357.7 347.2
Short-term external debt by remaining
381.8 338.3 268.8 314.8 331.7 259.9 216.9 193.5 185.1 175.8
maturity/CARs
Usable reserves/CAPs (months) 0.9 0.9 0.7 1.1 1.1 1.1 1.1 1.0 1.0 0.9
Usable reserves (mil. $) 7,255 5,752 6,212 6,032 6,857 7,827 7,806 7,806 7,806 7,806
FISCAL INDICATORS (%, General government)
Balance/GDP (8.9) (13.2) (3.6) (5.7) 0.6 0.8 0.9 0.5 0.3 0.2
Change in net debt/GDP (28.7) 8.5 0.6 (3.6) (1.1) 1.3 (0.9) (0.5) (0.3) (0.2)
Primary balance/GDP (3.8) (9.1) 0.4 (2.1) 3.9 4.0 3.7 3.3 2.8 2.5
Revenue/GDP 46.9 49.1 46.6 48.2 50.2 48.8 49.2 48.5 48.0 47.5
Expenditures/GDP 55.7 62.3 50.2 53.8 49.5 48.0 48.3 48.0 47.7 47.3
Interest /revenues 10.9 8.2 8.5 7.4 6.4 6.5 5.7 5.7 5.3 4.9
Debt/GDP 159.6 177.4 178.9 176.8 180.8 178.6 184.2 174.2 166.8 159.8
Debt/Revenue 340.5 361.0 383.6 367.2 360.6 365.8 374.3 359.1 347.5 336.3
Net debt/GDP 153.0 170.4 172.8 171.5 172.5 170.4 165.0 159.3 153.4 147.7
Liquid assets/GDP 6.6 7.1 6.1 5.3 8.4 8.2 19.2 14.9 13.4 12.0
MONETARY INDICATORS (%)
CPI growth 1.0 (0.9) (1.4) (1.1) 0.0 1.1 0.9 1.2 1.4 1.5
GDP deflator growth (0.4) (2.4) (1.8) (1.0) (1.0) 0.7 0.7 1.0 1.2 1.2
Exchange rate, year-end (LC/$) 0.76 0.73 0.82 0.92 0.95 0.83 0.82 0.79 0.80 0.80
Banks' claims on resident non-gov't
(8.0) (4.2) (2.7) (3.6) (4.5) (5.8) -2 0.0 0.5 1.0
sector growth
Banks' claims on resident non-gov't
118.8 120.4 118.5 115.7 111.8 103.2 98.5 95.4 92.5 90.1
sector/GDP
Foreign currency share of claims by
7.9 8.0 8.9 7.7 8.2 7.2 8.0 8.0 8.0 8.0
banks on residents
Foreign currency share of residents' bank
5.3 4.5 4.3 4.1 4.1 4.1 4.0 4.0 4.0 4.0
deposits
Real effective exchange rate growth (10.4) (6.5) 0.2 (3.8) 0.7 1.8 N/A N/A N/A N/A
Savings is defined as investment plus the current account surplus (deficit). Investment is defined as expenditure
on capital goods, including plant, equipment, and housing, plus the change in inventories. Banks are other
depository corporations other than the central bank, whose liabilities are included in the national definition of
broad money. Gross external financing needs are defined as current account payments plus short-term external
debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external
debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency
public- and private- sector borrowings from nonresidents minus official reserves minus public-sector liquid assets
held by nonresidents minus financial-sector loans to, deposits with, or investments in nonresident entities. A
negative number indicates net external lending. LC--Local currency. CARs--Current account receipts. FDI--Foreign
direct investment. CAPs--Current account payments. The data and ratios above result from S&P Global Ratings'
own calculations, drawing on national as well as international sources, reflecting S&P Global Ratings'
independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.

RATINGS SCORE SNAPSHOT

Table 2
Greece Ratings Score Snapshot
Key rating factors
Institutional assessment 5
Economic assessment 3
External assessment 5
Fiscal assessment: flexibility and performance 2
Fiscal assessment: debt burden 6
Monetary assessment 5
S&P Global Ratings' analysis of sovereign creditworthiness rests on its assessment and scoring of five key rating
factors: (i) institutional assessment; (ii) economic assessment; (iii) external assessment; (iv) the average of fiscal
flexibility and performance, and debt burden; and (v) monetary assessment. Each of the factors is assessed on a
continuum spanning from 1 (strongest) to 6 (weakest). S&P Global Ratings' "Sovereign Rating Methodology,"
published on Dec18, 2017, details how we derive and combine the scores and then derive the sovereign foreign
currency rating. In accordance with S&P Global Ratings' sovereign ratings methodology, a change in score does
not in all cases lead to a change in the rating, nor is a change in the rating necessarily predicated on changes in
one or more of the scores. In determining the final rating the committee can make use of the flexibility afforded
by §15 and §§126-128 of the rating methodology.

RELATED CRITERIA

Criteria - Governments - Sovereigns: Sovereign Rating Methodology, Dec.

18, 2017
General Criteria: Methodology For Linking Long-Term And Short-Term Ratings
, April 7, 2017
General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
General Criteria: Methodology: Criteria For Determining Transfer And
Convertibility Assessments, May 18, 2009
RELATED RESEARCH
Sovereign Risk Indicators, July 5, 2018. An interactive version is also
available at http://www.spratings.com/sri
Sovereign Ratings History, July 5, 2018
Sovereign Ratings List, July 5, 2018
Global Sovereign Rating Trends: First-Quarter 2018, April 11, 2018
Sovereign Debt 2018: Global Borrowing To Remain Steady At US$7.4 Trillion,
Feb. 22,
2018 Annual Sovereign Default Study And Rating Transitions, May 8, 2018
Long-Term Ratings On Greece Raised To 'B+' On Reduced Sovereign Debt
Servicing Risks; Outlook Stable, June 25, 2018
Credit FAQ: What Are The Rating Implications Of Greece's €30 Billion Debt
Swap?, Nov. 17, 2017
In accordance with our relevant policies and procedures, the Rating Committee
was composed of analysts that are qualified to vote in the committee, with
sufficient experience to convey the appropriate level of knowledge and
understanding of the methodology applicable (see 'Related Criteria And
Research'). At the onset of the committee, the chair confirmed that the
information provided to the Rating Committee by the primary analyst had been
distributed in a timely manner and was sufficient for Committee members to
make an informed decision.

After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and critical issues
in accordance with the relevant criteria. Qualitative and quantitative risk
factors were considered and discussed, looking at track-record and forecasts.

The committee's assessment of the key rating factors is reflected in the

Ratings Score Snapshot above.

The chair ensured every voting member was given the opportunity to articulate
his/her opinion. The chair or designee reviewed the draft report to ensure
consistency with the Committee decision. The views and the decision of the
rating committee are summarized in the above rationale and outlook. The
weighting of all rating factors is described in the methodology used in this
rating action (see 'Related Criteria And Research').

RATINGS LIST

Ratings Affirmed; Outlook Action

To From
Greece
Sovereign Credit Rating B+/Positive/B B+/Stable/B
Senior Unsecured B+ B+
Commercial Paper B B

Transfer & Convertibility Assessment AAA AAA

Certain terms used in this report, particularly certain adjectives used to

express our view on rating relevant factors, have specific meanings ascribed
to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for further
information. Complete ratings information is available to subscribers of
RatingsDirect at www.capitaliq.com. All ratings affected by this rating action
can be found on S&P Global Ratings' public website at
www.standardandpoors.com. Use the Ratings search box located in the left
column. Alternatively, call one of the following S&P Global Ratings numbers:
Client Support Europe (44) 20-7176-7176; London Press Office (44)
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm
(46) 8-440-5914; or Moscow 7 (495) 783-4009.
Primary Credit Aarti Sakhuja, London (44) 20-7176-3715;
Analyst: aarti.sakhuja@spglobal.com
Frank Gill, Madrid (34) 91-788-7213;
Secondary Contact:
frank.gill@spglobal.com
Research Meenakshi Gautam, CRISIL Global Analytical Center, an S&P Global Ratings affiliate,
Contributor: Mumbai
SovereignEurope;
Additional Contact:
SovereignEurope@spglobal.com