Markets bet on Greek default as credit rating slumps again

Greece's credit rating has crashed once again and now stands on a par with Fiji and Vietnam.

Moody's Investor Services downgraded the eurozone nation's sovereign debt yesterday by three notches to B1 from Ba1, way below even troubled Ireland, Portugal or Spain. Not much more than a year ago Greece was an A1 risk, and is now firmly into "junk" territory. It suggests, once again, that international investors have little confidence in the country's ability to repay its debts, whatever new bailout mechanisms for the eurozone are eventually adopted by the heads of government summit in Hungary later this month.

Markets may also have been unnerved by suggestions from the freshly elected Irish government that it wishes to "renegotiate" the terms of its EU/IMF bailout. Greece received €110bn (£95bn) in assistance last spring. Moody's justified their move because of the "risk of a post-2013 restructuring might lead the Greek authorities and investors to participate in a voluntary distressed exchange before that time".

The credit agency also cast doubt on the ability of George Papandreou's government to deliver its austerity programme and on the Greek authorities' ability to gather taxes, a traditional weakness. "The fiscal consolidation measures and structural reforms that are needed to stabilise the country's debt metrics remain very ambitious and are subject to significant implementation risks, despite the progress that has been made to date," it said. "The country continues to face considerable difficulties with revenue collection."

Moody's explicitly raised the issue of default. "Moreover, the risk of a post-2013 restructuring might lead the Greek authorities and investors to participate in a voluntary distressed exchange before that time," it said.

With the Greek economy threatening to relapse into recession as the cuts and tax hikes make their presence felt, its ability to service a debt running towards 150 per cent of GDP at an interest rate of more than 5 per cent has been a growing danger to stability since the eurozone rescue last May.

The yield on benchmark Greek 10-year sovereign bonds is again more than 12 per cent, and went wider again yesterday, in company with Portugal and Ireland. Pressure on Portugal, in particular, has barely abated since January despite the Chinese and Japanese authorities signalling support for eurozone bond issues. The credit markets have swung once again behind the idea of a Portuguese bailout, probably of around €50bn, well within the capacity of the current European Financial Stability Facility. Spain, however, continues to represent a possibly unaffordable expense.

The Greek finance ministry said the Moody's move was "incomprehensible" and did not properly take into account the "upside impact" on the economy from the government's structural reforms programme.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions