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Moody's Downgrades Greece To Just A Few Notches Above Default: From B1 To Caa1, Outlook Negative

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Next up: Greece begins criminal proceedings against the rating agency for character defamantion and liber (or is that slander?). Also, Belgium is next. Yet most importantly, there is no mention in the downgrade if the "Vienna plan" currently contemplated, or the latest zany "debt rolling" proposal constitutes an Event Of Default, meaning the market will have even more uncertaintly to grapple with.

Moody's downgrades Greece to Caa1 from B1, negative outlook

Moody's Investors Service has today downgraded Greece's local and foreign currency bond ratings to Caa1 from B1, and assigned a negative outlook to the ratings. The rating action concludes the review for possible downgrade that the rating agency initiated on 9 May 2011.

The main triggers for today's downgrade are as follows:

1. The increased risk that Greece will fail to stabilise its debt position, without a debt restructuring, in light of (1) the ever-increasing scale of the implementation challenges facing the government, (2) the country's highly uncertain growth prospects and (3) a track record of underperformance against budget consolidation targets.

2. The increased likelihood that Greece's supporters (the IMF, ECB and the EU Commission, together known as the "Troika") will, at some point in the future, require the participation of private creditors in a debt restructuring as a precondition for funding support.

Taken together, these risks imply at least an even chance of default over the rating horizon. Moody's points out that, over five-year investment horizons, around 50% of Caa1-rated sovereigns, non-financial corporate and financial institutions have consistently met their debt service requirements on a timely basis, while around 50% have defaulted.

Greece's Caa1 rating incorporates Moody's assumption that current negotiations between the Greek government and the Troika will result in further official support for the Greek government and the announcement of additional austerity and structural reform measures.

The negative outlook on the Caa1 rating reflects Moody's view that the country's very large debt burden, the significant implementation risks in its structural reform package, and the country's ongoing need for external support skew risks of future rating actions to the downside.


The first trigger for today's downgrade is Moody's view that Greece is increasingly likely to fail to stabilize its debt ratios within the timeframe set by previously announced fiscal consolidation plans. The Greek government failed to achieve a number of the fiscal consolidation targets in 2010 as a result of fiscal shortfalls (both spending cuts and revenue collections) at the general government level and persistent weaknesses in tax collection. It has also become readily apparent that, under current policies, Greece is unlikely to meet its previously announced budget targets for 2011. These shortfalls have occurred in part because GDP growth has been weak -- in fact, the recession was deeper than was expected in 2010, and 2011 growth forecasts have been revised downwards. Moreover, in the coming weeks, Moody's expects the announcement of further fiscal austerity measures, which are likely to depress growth in 2011. This may in turn further weaken the political consensus within Greece to endure all the adjustments mandated by the reform package.

The expectation of a repeated failure to meet targets carries two implications. First, Greece is unlikely to return to the credit markets in 2012 for funding, and will require additional financial assistance from the Troika in order to avoid a default. The quid pro quo for such assistance will inevitably be further fiscal austerity and economic reform measures that will be necessary to address the shortcomings of the programme to date. Second, Moody's believes that raising the austerity bar still higher will further increase implementation risk for the Greek programme.

Heightened implementation risk in turn underpins the other key driver of today's downgrade to Caa1. Namely that the increased likelihood that the Troika will make the provision of financial assistance to Greece over the medium term conditional on a debt restructuring, in which private sector creditors would absorb some economic losses. Moody's believes that the public discussion about current policy options -- including the possibility that financial assistance to Greece may be delayed or suspended -- indicates that officials' cost-benefit analysis of a Greek restructuring is shifting.

Still not quite at CRAP level yet but getting there.

At least another bailout will fix it.

More of Moody stating the obvious at the link.

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I thought all of this mess was fixed months ago!

"It's contained."


There is no problem.

We might have a small problem.

There is a small problem.

The small problem is contained.

The small problem is leaking out slightly.

There is no medium sized problem.

We might have a medium sized problem.


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Here's a guide to the different(ish) ratings used by Moody's, S&P and Fitch:


Caa1 - Not Prime ( :lol: ) ; Substantial risks.

Seems an appropriate name "ratguide.png". A guide for rats on when to abandon sinking ships.

(edit: Caa1 = holed below the waterline)

Edited by Exit pursued by a bear
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