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Moody’s: Greece on Review for Possible Cut

Thursday, 16 Dec 2010 01:04 PM

Moody’s Investors Service said it placed Greece’s Ba1 local and foreign currency government bond ratings on review for possible downgrade, citing heightened concerns about whether the country will be able to reduce its debt to “sustainable levels”.

“Greece has made significant progress in implementing a very large fiscal consolidation effort,” Sarah Carlson, vice president-senior analyst in Moody’s sovereign-risk group, said today in an e-mailed statement in London. “The challenge of reducing debt to sustainable levels has also become greater due to both domestic and regional developments.”

Moody’s said the review was prompted in part by a shortfall in budget revenue in 2010 and concerns about support Greece could draw on if it continued to be excluded from markets for financing. The country secured a 110 billion-euro ($142 billion) aid package from the European Union and the International Monetary Fund in May to avert a default.

Credit-default swaps on Greek sovereign debt rose 28.5 basis points to 949, the highest since Nov. 30, according to data provider CMA. The yield on Greece’s 10-year bonds rose to 11.7 percent.

Greece’s debt ratio stood at 127 percent of gross domestic product in 2009, the highest in the 27-nation European Union. The EU estimates the measure will rise to 156 percent in 2012. Greece’s government has said debt as a percentage of GDP will peak in 2013.

Possible Downgrade

Moody’s said a “multi-notch” downgrade was possible if it concluded that the debt-to-GDP ratio had failed to stabilize in the next three to five years.

Moody’s cut Greece’s credit rating four steps to non- investment grade, or junk, on June 14, warning of the rising economic cost of the debt-strapped country’s budget cuts. On Dec. 2, Greece was warned it could receive a lower credit rating from Standard & Poor’s as proposed EU rules threaten to hurt bondholders. S&P placed Greece’s “BB+” long-term sovereign rating on “CreditWatch” with negative implications.

Greece has cut spending, raised taxes and trimmed wages to tackle the deficit, which swelled to 15.4 percent of GDP last year. To secure the EU-IMF aid, the government pledged to trim the shortfall to under the EU’s 3 percent limit in 2014. The crisis has prompted investors to sell the bonds of Greece and other high-deficit nations and pushed the euro.
 

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Moody s Investors Service said it placed Greece s Ba1 local and foreign currency government bond ratings on review for possible downgrade, citing heightened concerns about whether the country will be able to reduce its debt to sustainable levels . Greece has made...
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Thursday, 16 Dec 2010 01:04 PM
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