Fitch downgrades Greece's status three notches

13th July 2011, Comments 0 comments

Fitch ratings agency announced Wednesday it was downgrading Greece's status by three points to CCC status from its previous rating of B+.

The move came because of the absence of a new European Union-International Monetary Fund programme for Greece and growing uncertainty of the role private investors would play in any bail-out, said the agency.

It expressed concern that Greece was relying on getting 30 billion euros ($42 billion) out of its privatisation programme "and largely unquantifiable private sector participation" to supplement any international bail-out.

"While asset sales of five billion euros look attainable in 2011, the privatisation programme will become increasingly challenging," the agency said.

"Fitch believes any new programme must be backed by credible policy targets," it said.

It acknowledged measures the Greek government had pushed through parliament in June showed their continued commitment to the EU-IMF programme.

But figures for the first half of 2011 showed they were still spending too much and bringing in too little money.

"Thus, a further contraction in economic activity of some 4% of GDP now looks likely in 2011, followed by a weak recovery in 2012," it concluded.

"Today's rating downgrade reflects the absence of a new, fully-funded and credible EU-IMF programme for Greece, coupled with heightened uncertainty surrounding the role of private creditors in any future funding, as well as Greece's weakening macroeconomic outlook," it said.

The agency had expected a meeting of EU finance ministers earlier this month to resolve the question of a bail-out, it said.

But while the general outlines were agreed, there was "no further clarity" on the sums involved.

"Fitch's 'CCC' rating encapsulates substantial credit risk and acknowledges that default is a real possibility," the agency concluded.

"As previously stated by Fitch, private sector involvement would likely be viewed as a sign of sovereign credit impairment and could trigger a rating default event."

European leaders are divided over how to stop the spreading eurozone debt crisis but France and Germany disagreed about calling an emergency summit.

Both Greece and Spain have attacked a German-led drive for private investors to shoulder part of the costs of a second rescue for Athens, widely expected to trigger a default status on Greek debt.

The IMF said Greece would need an additional 71 billion euros ($100.6 billion) in European Union aid plus 33 billion euros from private creditors to weather its debt crisis.

The possible involvement of banks, insurers and pension funds, opposed by the ECB, is a factor behind turmoil on financial markets and has helped put Italy and Spain in the eurozone spotlight.

© 2011 AFP

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