Greece Hit with (Another) Massive Ratings Downgrade

Reeling from debt and its workers' demonstrations against austerity measures forced by the European Union and International Monetary Fund, Greece took another proverbial shot to the jaw this week as one of the "Big Three" credit ratings agencies dealt a massive, three-level credit rating downgrade.

Moody's Investors Service downgraded Greece's government bond ratings to a level of Ba1, which is considered junk. Moody's also hit the city of Athens with a similar downgrade, noting that reliance on central government transfers to pay for operations and capital investments makes it and other sizable Greek municipalities "unlikely to possess sufficient financial flexibility to enable their credit quality to be stronger than that of the sovereign."

Moody's, who again came under attack from Greek officials over the move, defended the downgrade decision citing three reasons:

1.) The fiscal consolidation measures and structural reforms that are needed to stabilize the country's debt metrics remain very ambitious and are subject to significant implementation risks.
2.) The country continues to face considerable difficulties with revenue collection.
3.) There is a risk that conditions attached to continuing support from official sources after 2013.

"Moody's recognizes [sic] the very significant progress that Greece has made in implementing a large fiscal consolidation and introducing the legislation required to support a wide-ranging structural reform programme [sic]," the ratings agency said in a statement. "However, Moody's believes that the Greek government still faces a very significant challenge in its continued execution of the measures required to both increase revenue and achieve efficiency savings as part of the austerity programme [sic]. Whether relating to improvements in the operating efficiency of state-operated enterprises, to the savings required in the health service or in military expenditure, or to the implementation of deregulation measures passed by parliament; the task facing officials and managers remains enormous."

The ratings agency, considering the outlook on Greece "negative," now places the likelihood of a Greek government default at upwards of 20% within the next five years. It has been widely reported that ratings agency Standard & Poor's is keeping close watch on Greece's present meetings with fellow euro zone member nations over its debt and solutions to address it. It remains possible, if not downright likely, that a similar ratings downgrade could be on the way from that agency, which already values Greek debt at junk levels and its credit rating as poor.

Greek officials, who have regularly bashed the ratings agencies for their own poor track record of ratings in the run-up to the global economic downturn as well as what it perceives as obvious conflicts of interests in their decision-making, again responded to Moody's with vitriol. They've characterized the latest downgrade as "incomprehensible" and "unjustified," much like they did during downgrades that preceded Greece's acceptance of a bailout package rife with unpopular austerity demands in 2010.

Brian Shappell, NACM staff writer

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