Greece’s credit rating was cut three steps by Moody’s Investors Service, which said the risk of default was rising. Greek bonds and the euro weakened after the announcement.
The rating was lowered to “B1,” the same as Belarus and Bolivia, from “Ba1,” as Moody’s cited concerns over tax collection and “implementation risks” in the budget cuts demanded as a condition for a 110 billion euro (US$154 billion) international bailout last year.
“The rating agency believes that the likelihood of a default or distressed exchange has risen since its last downgrade of the Greek government debt rating in June 2010,” a Moody’s statement said yesterday.
EU leaders will meet in Brussels on March 24 and March 25 to try to agree on a comprehensive package of measures for containing a regional debt crisis that led to bailouts last year of Greek and Irish debt.
RESISTANCE
Optimism that the measures would include using the 440 billion euro European Financial Stability Facility to allow Greece to buy back some of its debt and pay lower interest rates on aid has receded with growing German resistance to the proposals.
Greek 10-year government bonds fell, sending their yield to 12.3 percent, more than anywhere else in the euro region.
The premium that investors demand to hold the bonds instead of benchmark German bonds rose 4 basis points to 901 basis points yesterday.
The spread reached a euro-era record of 974 basis points on Jan. 7.
The euro erased its advance versus the US dollar after the downgrade. The euro was 0.1 percent weaker at US$1.3975 as of 7:46am in London after trading as strong as US$1.40.
Greece lost its last investment grade rating on Jan. 14 when Fitch Ratings cut it to “BB+” from “BBB-.”
BUDGET BUSTING
Greece accepted the bailout from the EU and IMF in May last year after its debt financing costs surged, leaving the country unable to tap financial markets. Greece has resumed selling treasury bills and Greek Minister for Finance George Papaconstantinou is targeting a return to the market for longer-term debt this year.
Greek Prime Minister George Papandreou’s government cut spending and raised taxes last year to bring down the budget deficit to 9.4 percent of GDP from 15.4 percent in 2009.
The government will detail additional measures for next year to 2014 by the end of this month, amounting to 8 percent of GDP, as it tries to bring the deficit below 3 percent under the terms of the bailout.
Moody’s yesterday said that about 20 percent of “B1-rated” sovereigns, non-financial companies and financial institutions default within a five-year period.
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