Moody's Downgrades Greece's Further Into Junk Territory

Wednesday, 01 Jun 2011 03:20 PM

 

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Credit rating agency Moody's downgraded Greece's bond ratings deeper into junk status Wednesday, a further blow to the struggling country which has been wrapping up negotiations for a vital fifth installment of international bailout loans.

Moody's downgraded Greece by three notches from a B1 rating to Caa1 with a negative outlook, citing increased risk that the financially stricken country will be unable to handle its debt problems without an eventual restructuring — paying creditors less than the full amount, or later than originally planned.

The agency also cited "the country's highly uncertain growth prospects" and the missed targets in budget reforms being carried out in return for a 110 billion euro ($158.97 billion) bailout package from the International Monetary Fund and other European Union countries that use the euro.

"The first trigger for today's downgrade is Moody's view that Greece is increasingly likely to fail to stabilize its debt ratios within the timeframe set by previously announced fiscal consolidation plans," the agency said, adding that the government had "failed to achieve a number of the fiscal consolidation targets in 2010."

Moody's added that over a five-year period, about half of Caa1-rated countries, corporate or financial institutions have met their debt obligations on time, while the others have defaulted.

The Finance Ministry in Athens attributed the downgrade to "intense rumors in the printed and electronic press" and said Moody's failed to take into account the government's commitments in order for it to achieve its fiscal targets in 2011.

The government is also currently concluding negotiations with the EU, IMF and European Central Bank so it can receive the fifth installment of its bailout loans later this month, worth 12 billion euros ($17.34 billion).

The negotiations' outcome will depend on a review of the country's finances by the EU and IMF due to be published by the end of this week. The talks are considered key to providing possible additional bailout assistance next year, as Greece remains frozen out of the bond markets by high interest rates.

They will also cement details of a midterm austerity program due to run from next year to 2015, two years beyond the current government's mandate.

"The downgrade decision by Moody's rating agency comes as representatives from the EU, the ECB and the IMF are in Greece to evaluate the country's financial program," the Finance Ministry said, adding that the government had already achieved "important fiscal targets" and was due to submit the midterm program to Parliament in the coming days.

Prime Minister George Papandreou is also to head to Luxembourg Friday for emergency talks with Jean-Claude Juncker, head of the group of 17 eurozone finance ministers and Luxembourg prime minister. Juncker recently criticized Greece for being slow in cutting debt and reforming the public sector.

As the country awaits the results of the international review, Greek central bank governor George Provopoulos described speculation of a possible Greek exit from the eurozone as "unbelievable and absurd"

EU officials said there was "good progress" in the talks, but also suggested more austerity measures would be likely.

"Once the review is concluded positively, the EU with the IMF will move on to prepare next steps in order to safeguard financial stability and to continue economic reform in Greece," said Olli Rehn, the EU Commissioner for monetary affairs, at an event in New York.

Greeks are already seeing the effects of the intensified austerity measures. Some 7,000 civil service jobs will be placed under review after the government announced Wednesday that 75 state agencies will be closed or restructured over the summer — the first tangible indication of possible government layoffs since the Greek debt crisis began.

The impending cuts have triggered fresh protests.

On Wednesday, scores of unemployed protesters blocked the entrance to the Finance Ministry, while the EU and IMF debt monitors were inside the building. The protesters moved backed after briefly scuffling with riot police.

Demonstrators joining a new Internet-organized protest gathered for an eighth straight day in Greek cities, while the country's two largest labor unions announced plans to stage a central Athens protest march on Saturday.

Riot police were called in to escort lawmakers out of parliament late Tuesday, after some 200 demonstrators heckled deputies as they left in their cars, some spitting at and kicking the vehicles.

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

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