Greece rating cut by Moody's amid default warning

 
Taxi drivers protest in Athens Moody's said Greece "will still face very significant implementation risks" to tough austerity measures

Credit rating agency Moody's has cut Greece's rating, warning that a planned debt swap would constitute a default.

The rating was cut another three notches from Caa1 to Ca - just two more notches shy of a default rating.

"The announced EU programme... implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100%," the agency said.

The debt swap would increase Greece's borrowing terms by up to 30 years.

However, a statement last week from the Institute of International Finance - a trade body representing global banks and other major lenders - conceded that the debt deal would cost private sector creditors an estimated 21% of the value of the Greek debts they currently hold.

It comes after another rating agency, Fitch, warned that it too expected the deal would mark a "selective" debt default by Athens.

The debt exchange with private sector lenders is part of a comprehensive package announced on Thursday by European leaders to shore up the euro and prevent the Greek debt crisis from spreading to other economies, notably Spain and Italy.

Start Quote

Our experience is that relatively small restructurings have often been followed by deeper defaults”

End Quote Alastair Wilson Moody's managing director for Europe, Middle East and Africa credit policy
'Developing' outlook

As well as the private sector debt swap deal for Greece, European leaders also agreed last week to lengthen the repayment terms on existing bail-out loans, and lower the interest rate they were charging.

Unusually, Moody's assigned the rating a "developing" outlook, instead of the more typical "positive" or "negative" outlooks.

"Looking further ahead, the EU programme and proposed debt exchanges will increase the likelihood that Greece will be able to stabilize and eventually reduce its overall debt burden," the agency said.

However, Moody's said the debt exchange only offered the country limited relief, and did not make clear how quickly Greece might be upgraded from a default rating once it is complete.

"Our experience is that relatively small restructurings have often been followed by deeper defaults," said Alastair Wilson, managing director at Moody's.

The ratings agency also warned that Greece "will still face very significant implementation risks to fiscal and economic reform".

Austerity measures demanded by Greece's European partners and the International Monetary Fund remain highly unpopular among many of the country's voters, and face continuing street protests.

Precedent

The downgrade means Moody's has followed its counterpart Standard & Poor's in giving Greece the lowest rating of any country it rates in the world, falling below Cuba and Ecuador.

Moody's also had mixed messages for the prospects of other heavily-indebted eurozone countries.

"The support package for Greece also benefits all euro area sovereigns by containing the severe near-term contagion risk that would likely have followed a disorderly payment default or large haircut on existing Greek debt," it said.

However, the agency also noted that by agreeing to impose losses on Greece's private sector lenders, European leaders had set a precedent for the other rescued countries, Portugal and the Irish Republic.

 

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  • rate this
    -1

    Comment number 186.

    This debt is nothing but poison, the longer it stays in the system the worse the consequences. Let it out and lets deal with it like the adults we are.
    The only way UK can grow is by cutting the vast bulk of red tape the EU impedes on us, it wont involve cuts or tax increases and should be viewed seriously, REFERENDUM NOW.

  • rate this
    -3

    Comment number 185.

    Knights Templar was re-founded in London in 2002 by representatives from eight European countries, for the purpose of serving the interests of the free indigenous peoples of Europe + fight against the ongoing European Jihad. The Knights Templar is a pan-European nationalist military order. The order is to serve as an armed Indigenous Rights Organisation + as a Crusader Movement. Its serious folks

  • Comment number 184.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    0

    Comment number 183.

    What Prime Minister Papandreou and his PASOK government MPs has done in making deals with the EU to sell off the country is plain TREASON against the Greek people and he should be punished for his crimes.

  • rate this
    +2

    Comment number 182.

    What concerns me about the global financial meltdown is that previous meltdowns were erradicated by war. The US doesn't maintain 12 aircraft carrier battle groups so it can drown in its own debt. The question will be who is the next target, so the US can pull itself out of the recession on the strength of it own defense industries.

 

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