Greece’s credit rating was cut three steps by Moody’s Investors Service, which cited the rising risk of default. Greek bonds fell and the Finance Ministry in Athens called the move “completely unjustified.”

The rating was lowered to B1, the same as Belarus and Bolivia, from Ba1 as Moody’s cited concerns that lagging tax collection and “implementation risks” would make it more difficult for the government to reach budget-cutting conditions of a 110 billion-euro ($154 billion) international bailout.
“The risk has materially increased of a default event,” said Sarah Carlson, Moody’s senior analyst for Greece said in a telephone interview on Monday from London. “Our central view is that the Greek government will achieve its objectives and it won’t need to impose losses on credits, but there are material risks to that outcome.”
EU leaders are trying to hammer out by the end of the month a package of measures to contain the debt crisis that led to bailouts last year of Greece and Ireland. Optimism that the measures would include using the 440 billion-euro European Financial Stability Facility to allow Greece to buy back some of its debt and pay lower interest rates on aid has receded with growing German resistance to the proposals.
------------Bonds decline
Greek bonds fell, sending the yield on 10-year notes up 7 basis points to 12.32 percent, the most in the euro region. The premium that investors demand to hold the bonds instead of benchmark German bunds widened 4 basis points to 902 basis points, the highest since Jan. 11, four days after it reached a euro-era record of 974 basis points. Credit-default swaps on Greece climbed 27 basis points to 1,013, according to CMA. That’s up from 779 basis points Feb. 2 and approaching the record 1,036 basis points set Jan. 10.
The Greek Finance Ministry slammed the Moody’s decision as “incomprehensible.” Moody’s didn’t pay enough attention to the progress Greece has made in cutting the deficit by 6 percentage points of gross domestic product last year, the ministry said in an e-mailed statement.
“Moody’s downgrading of Greece’s debt reveals more about the misaligned incentives and the lack of accountability of credit-rating agencies than the genuine state or prospects of the Greek economy,” the statement said. “Having completely missed the build-up of risk that led to the global financial crisis in 2008, the rating agencies are now competing with each other to be the first to identify risks that will lead to the next crisis.”
---------- Eu summits
The outcome of EU summits this month won’t significantly affect Greece’s long-term prospects, Carlson said.
“We did consider a range of likely outcomes, but really our concern is much more long term,” she said. “Whatever decisions are taken at the end of month are not something that would change our long-term outlook.”
The European Commission forecast in November that Greek debt last year would reach 140 percent of GDP, the highest in the euro region and would peak at 156 percent of GDP in 2012.
While Moody’s praised the government for making “very significant progress” in cutting its deficit, officials there still face an “enormous task” in delivering on the pledges contained in the bailout program.
The prospect that German Chancellor Angela Merkel will push through her demands that private bondholders assume some of the cost of future bailouts was also part of Moody’s thinking.
“Given that the quid-pro-quo from ongoing support could be some kind of restructuring event,” Carlson said. “We wanted to reflect that in the rating.”
(Source: Bloomberg)