Credit rating agency Moody’s last night slashed its credit rating on debt-stricken Greece to Caa1 from B1, assigning it a ‘Negative’ outlook which means it could be downgraded further.
Moody’s said the downgrade reflected the ‘increased risk that Greece will fail to stabilize its debt position without a debt restructuring’ and that its private sector creditors would have to take some of the pain as a result. It put the odds of a debt default at evens.
However, it said that it believes current talks between Greece, the EU, International Monetary Fund and European Central Bank will ‘result in further official support and the announcement of additional austerity and structural reform measures’.
A ratings downgrade usually makes it more difficult for the affected country to raise fresh funds, complicating its problems, as investors demand ever higher rates of return to hand over fresh money. Any C-rating is deemed to be high risk and near default.
The Greek Ministry of Finance said late Wednesday that the decision by Moody’s Investors Service to downgrade sovereign debt by 3 notches has clearly been influenced by the intense and unfounded rumours in the media, adding that the rating agency overlooks the unprecedented commitments made by the Greek Government.
According to an announcement, “the decision by Moody’s to downgrade Greek sovereign debt comes at a time when the representatives of the EU, ECB and IMF are in Greece to assess the country’s progress in implementing its economic adjustment programme. The decision has clearly been influenced by the intense and unfounded rumours in the media and disregards the unprecedented commitments made by the Greek Government to meet its fiscal target for 2011 and to accelerate its privatization programme. It is noteworthy that while the rating agency in its statement recognizes the efforts made by Greece and its renewed commitments, it preemptively proceeds with a rating cut.
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