Tags: EU | Greece | Financial | Crisis

Fitch Downgrades Greece to One Step Above Default

Wednesday, 13 Jul 2011 01:28 PM

 

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Greece suffered another sovereign downgrade on Wednesday, when the Fitch agency slashed its credit worthiness by three notches further into junk status and only one grade above default.

The agency cut Greece's rating from B-plus to CCC, bringing it in line with the other two major agencies, Moody's and Standard and Poor's, which had downgraded the country's bonds to a similar level last month.

Greece relies on loans from a 110 billion euros ($155 billion) international bailout from other eurozone countries and the International Monetary Fund, and discussions are under way for a second bailout to keep the country's crisis from destabilizing other larger European economies.

However, no decisions have been made so far on how much more help Greece will get or in what way private holders of Greek bonds could contribute towards easing repayments. Credit ratings agencies have warned they could consider a voluntary rollover of Greek debt as a form of default.

"Today's rating downgrade reflects the absence of a new, fully-funded and credible EU-IMF program for Greece, coupled with heightened uncertainty surrounding the role of private creditors in any future funding, as well as Greece's weakening macroeconomic outlook," Fitch said in a statement.

While the main aspects of further help were discussed at a meeting of EU finance ministers earlier in the week, "no further clarity on the volume and the terms of new money or the nature of private sector participation was forthcoming," it said.

The agency also noted that Greece has been missing fiscal targets set out as conditions for receiving the first bailout, from which it began drawing funds in May last year.

"Fitch's 'CCC' rating encapsulates substantial credit risk and acknowledges that default is a real possibility," it said. "As previously stated by Fitch, private sector involvement would likely be viewed as a sign of sovereign credit impairment and could trigger a rating default event."

The move came as the IMF said Greece's government must move quickly and decisively to bring its huge public debt under control.

To the outrage of labor unions across the country, the government has embarked on a punishing new round of austerity measures after missing its deficit-cutting targets so far in 2011.

Spending cuts and tax hikes have already sparked frequent strikes and demonstrations, with protests often turning violent in central Athens.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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