Greece deeper into junk territory as Moody's cuts again
Greece suffered another humiliating blow last night when credit rating agency Moody's downgraded its rating on Greek bonds even further into junk status.
The downgrade places Greece at the very bottom of Moody's league table of credit-worthy European countries.
The news came as officials were desperately trying to secure an second emergency cash injection from the European Union and the International Monetary Fund.
Moody's said it was very concerned about Greece's "highly uncertain growth prospects" and warned that the embattled country is "increasingly likely to fail to stabilise its debt ratios" by the deadline set by its previous €110bn (£96.7bn) bailout.
The three-notch-downgrade takes Greece from B1 to Caa1, giving the country a worse credit rating than Montenegro.
The humbling downgrade came as German ministers were forced to reassure the market that the EU and the IMF were committed to the bailout. Martin Kotthaus, a German finance minister, said: "It was designed jointly. It will be evaluated jointly, and I also assume that it can only be continued jointly, including when it comes to the question of payouts of future tranches."
Greece is due to receive a €12bn injection from Europe and the IMF on June 29 as part of the international bail–out programme. Delivery of the cash is subject to a progress report on asset sales and spending cuts by the international authorities.
Representatives of the "troika" – the EU, IMF and European Central Bank – are in Athens inspecting Greece's assets. Tension is mounting in the markets ahead of their decision – which is expected before the weekend. On Wednesday there were further reports that the IMF will not sanction the next tranche.
Last week, European markets were rattled when Jean–Claude Juncker, who chairs the eurozone finance ministers, said Greece could be disqualified from claiming part of its next cash injection.
Mr Juncker, who is also Luxembourg's prime minister, said Greece would be unlikely to guarantee its funding over the next 12 months, preventing the IMF from releasing funds under its own rules.
Greece's commitment to a sale of its assets is key to restoring confidence in the bail-out.
Germany's Mr Kotthaus said yesterday: "It must be made crystal clear how these privatisation announcements and plans can be executed concretely, tangibly, and comprehensively so that all further delays and such can be avoided."
Meanwhile, German chancellor Angela Merkel has defended the stability of the euro but said some countries had to improve their competitiveness and their "fiscal responsibility".
As the EU prepared to provide more aid to Greece on top of the €110 billion already agreed, Chancellor Merkel told an economic forum in Singapore that Europe doesn't "have a problem with the euro as such. It is a stable currency, particularly if you look at it vis-a-vis the dollar."
However, she said that individual countries, which she didn't name, did have "a competition problem, a competitiveness problem" which was having an impact on the currency.
"So this is why we have said right from the start we need to boost competitiveness and we need to put fiscal responsibility and fiscal soundness at the very heart of our efforts.
"Because the competitiveness of the member states in the euro area is too disparate, some of them are too weak as regards their competitive situation and the question is obviously how can we overcome this crisis.”
Chancellor Merkel supported French finance minister Christine Lagarde's bid to become the next leader of the International Monetary Fund.
"If I look at the persona, Christine Lagarde as a finance mnister enjoys an excellent reputation worldwide. I hope that emerging countries will take an objective and unbiased look at her.”