Moody's slashes Greek credit rating to junk
Moody's Investors Service slashed Greece's credit rating to junk status yesterday in a new blow to the debt-ridden country that is under intense international scrutiny after narrowly avoiding default last month.
A Moody's statement said it was cutting Greece's government bond ratings by four notches to Ba1 from A3, with a stable outlook for the next 12 to 18 months. It was the second of the three major agencies to accord Greek bonds junk status. Standard & Poor's did the same in late April.
The downgrades reflect concern that the country could fail to meet its obligations to cut its deficit and pay down its debt.
Finance ministry officials in Athens had no immediate reaction to the rating cut, which came as a delegation from the International Monetary Fund (IMF) and the European Union (EU) started an interim review of the country's efforts to pull itself out of a major debt crisis.
After amassing a vast public debt and overspending that sent its budget deficit spiralling to 13.6pc of gross domestic product in 2009, Greece was saved from defaulting on its loans in May by the first installment of a joint EU and IMF €110bn bailout. It is to receive the second in September, pending implementation of a major austerity programme that has sparked strong union reaction and a series of damaging strikes.
"The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package," said Moody's lead analyst for Greece Sarah Carlson. "The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilising debt service requirements at manageable levels.
"Nevertheless, the macroeconomic and implementation risks associated with the programme are substantial and more consistent with a Ba1 rating."
Despite the downgrade, the gap, technically known as a spread, between Greek 10-year bond yields and their benchmark German equivalents dipped only slightly late yesterday. The difference was at 5.91pc, down from 6.12pc earlier in the day.
That means that Greece would have to pay a rate of around 9pc were it to raise cash through bond issues. However, bolstered by the rescue loans, Athens said it had no plans to try selling its bonds to the markets soon -- except for short-term treasury bill issues in July.