Fitch Downgrades Greece to 'BBB-'; Outlook Negative (thats a shocker, downgrade the credit just before the default)

Fitch Downgrades Greece to 'BBB-'; Outlook Negative   
09 Apr 2010 10:28 AM (EDT)

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Fitch Ratings-London-09 April 2010: Fitch Ratings has today downgraded Greece's Long-term foreign and local currency Issuer Default Ratings to 'BBB-' from 'BBB+'. The Outlook is Negative. The agency has simultaneously affirmed Greece's Country Ceiling at 'AAA' and the Short-term foreign currency IDR at 'F2'.

The downgrade reflects the intensification of fiscal challenges in response to more adverse prospects for economic growth and increased interest costs. It also reflects ongoing uncertainties about the government's financing strategy in the context of increased capital market volatility.

The sharp rise in interest rates faced by the government this year, in combination with a deterioration in the outlook for economic growth, will make it harder for the government to achieve its fiscal targets of reducing the deficit to 8.7% of GDP this year and ensuring that public debt peaks at just over 120% of GDP in 2010 and 2011. Pressures on the banking system underline the adverse spill-over from sovereign risk concerns on the wider economy, while contingent liabilities from the banking sector will increase as the government provides banks with increased guaranteed funding.

Fitch recognises some early indications of improvements in fiscal outturns and the strength of the government's commitment to fiscal consolidation measures, which have been supported by Greece's euro area peer governments. However, given that the credibility of the fiscal consolidation effort will only be established by sustained deficit reduction over a prolonged period of time, it is vital that the Greek authorities import credibility from external institutions, underpinned by a credible commitment of financial support. The agency reiterates the lack of clarity regarding the mechanism for timely external financial support may have hindered Greece's access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets. While Fitch judges that external financial support is likely to be forthcoming, greater clarity on back-stop financial support in the form of an explicit IMF programme is likely to be required to shore up market confidence in the face of still substantial near-term financing needs.

The Negative Outlook reflects substantial uncertainties remaining over the prospects for sustained fiscal consolidation over the medium term.

Applicable criteria, 'Sovereign Rating Methodology', dated 16 October 2009, are available on www.fitchratings.com.

Contact: Chris Pryce, London, Tel/email: + 44 20 7417 4342/chris.pryce@fitchratings.com; Paul Rawkins, +44 20 7417 4239/paul.rawkins@fitchratings.com

Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email: julian.dennison@fitchratings.com; Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com.