Moody's downgrades Greek rating on debt concerns
International ratings agency Moody's cut Greece's sovereign ratings to A3 from A2 on Thursday and warned they faced a possible further downgrade in the face of the country's debt problems.
It said the decision, made as Athens discusses a rescue accord with the EU and IMF, was "based on Moody's view that there is a significant risk that debt may only stabilise at a higher and more costly level than previously estimated."
The yield or the rate of return paid to investors on Greek 10-year bonds jumped to record highs on Thursday at nearly 8.8 percent as investors bet that the government would have to get help directly from the European Union and the International Monetary Fund.
Moody's said a review will determine whether the ratings will remain in the A range and their likely outlook.
The review will be concluded once Moody's "has obtained greater clarity on longer-term policy measures and Greece's macroeconomic prospects," adding that this could happen anytime in the next three months.
The downgrade to A3 means that Greek government debt paper retains an investment grade rating but the news comes as Athens reels under relentless market pressure.
"Although the Greek government appears to be on, or even ahead of, schedule in terms of the implementation of the actions laid out in its Stability and Growth Programme, the difficult macroeconomic and financial environment has made continued adherence to the programme considerably more challenging," Moody's said.
While there has been progress, an EU revision to put the 2009 Greek public deficit at a massive 13.6 percent of Gross Domestic Product, up from the previously given 12.9 percent, meant the task had got harder.
"As a result, Moody's now believes that debt stabilisation will, in all likelihood, eventually occur but that it may materialise at a higher price and a level more consistent with a Baa-range rating."
In Moody's scale, Baa counts as the lowest investment grade rating.
"It is unlikely that the rating will remain at A3, unless the government's actions can restore confidence in the markets and counteract the prevailing headwinds of high interest rates and low growth that could ultimately undermine the government's ability to sustainably cut debt levels," it said.
In December, Moody's downgraded Greece's rating from A1 to A2.
© 2010 AFP