Fitch Ratings downgraded Greece's credit rating to B-plus from BB+ and placed its ratings on Rating Watch Negative, citing the scale of the challenge facing the country as it attempts to secure solvency and lay the foundations of an economic recovery. Risks have risen as the country must undertake further austerity measures in order to meet its deficit goals, while a greater emphasis on privatization increases the risk that aid payments from the European Union and International Monetary Fund may be delayed, it mentioned.
Fitch Ratings warned it would consider any attempt to extend the maturities of Greek sovereign debt to be a default.
Fitch said the B-plus rating incorporates expectations that “substantial new money” will be provided to Greece by the EU and IMF and that Greek government debt won’t be subject to a “soft restructuring” or a “re-profiling” — terms which are taken to refer to the potential voluntary extension of debt maturities.
Re-profiling refers to extending the maturity of existing debt without cutting the principal, allowing creditors to avoid taking write downs.
That brought strong warnings from European Central Bank officials, who contend any sort of restructuring would wreck the banking sector in Greece and potentially elsewhere in Europe, given banks’ exposure to Greek debt.
Norway said suspended the payment of a $42 million grant to Greece because the country hasn’t lived up to obligations under the grant agreement. Greece was required to take a 50% stake in projects under the fund, which were aimed at reducing differing economic and social conditions in Southern and Central Europe.
A Greek debt default would hurt other peripheral euro zone states, Moody's said in a statement, becoming the last of the three major rating agencies to say any kind of restructuring would constitute default.
A Greek debt restructuring could affect the credit ratings of other European sovereigns and would likely also lead to rating downgrades for Greek banks.
The fallout would have implications for the creditworthiness (and hence the ratings) of issuers across Europe.
Greece itself would likely see its rating tumble two or three notches to Ca or C, from its current level of B1.
Greek banks could remain in the B range if they are recapitalized, and if the European Central Bank provides liquidity support. But the ratings firm said it considers it more likely that the private banks will also default, triggering ratings downgrades.
Standard & Poor’s lowered its outlook on Italy’s A-plus sovereign-credit rating from stable to negative, citing potential political gridlock that could derail the government’s plan to balance its budget by 2014.
Italy’s public debt stood near 120% of gross domestic product at the end of last year.
Any concern that Italy’s large debt burden is not on a downward trajectory would also be a concern for the euro area as a whole as in a worst-case scenario Italy could probably be characterized as too big to bail.
Spain’s deficit was 9.2% of GDP in 2010. The government aims to cut the deficit to 6% of GDP in 2011.
Fitch said it may downgrade Belgium's AA+ credit rating, as the country has not had a proper government since elections last June but is enjoying an economic boom.
Investors are worried not just about Greece but also about heightened risks in Spain, where the government was drubbed in regional elections, and ratings agencies' warnings for Italy and Belgium.
Consecutive DOWNGRADING of European Countries by the World's Top CREDIT RATING AGENCY raises thousands of Questions on the Credibility of the European Economy. Then too economies are trying to solve the Credit Problems and are also proving to be a failure in it.
The most alarming fact is that the Developed Economies are having maximum exposure in the CDS (Credit Default Swaps) Market, and if this problem converts into a Big Picture, it will again be a BIG TREMOR for the Financial Markets all around the Globe.
In other words, the Economies all around the world will again pay the cost of GLOBALIZATION.
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