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
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Angel Di Maria is shown the red card
tech
Sport
Roger Federer after his win over Tomas Berdych
sport
Life and Style
News in briefs: big pants in 'Bridget Jones's Diary'
fashionBig knickers are back
Sport
James Milner is set to sign for Liverpool this week despite rival interest from Arsenal
sportReds baulk at Benteke £32.5m release clause
News
The controversial Motor Neurone Disease Association poster, featuring sufferer Michael Smith, has drawn a series of angry complaints
newsThis one has been criticised for its 'threatening tone'
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

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Guru Careers: Communications Exec / PR Exec

£25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral