Moody’s Investors Service on Monday slashed Greece’s government bond ratings by four notches to junk territory, saying there was “considerable” uncertainty surrounding the timing and impact of support measures on the country’s economic growth.
The ratings agency cut the rating to Ba1, which is the highest junk-level rating, a level that reflects Moody’s analysis of the balance of strengths and risks associated with the European Union/International Monetary Fund support package.
There was scant initial market reaction to the downgrade, with the euro holding onto most of the day’s gains as the currency rode a continuing wave of improved investor sentiment after earlier strong euro-zone economic data. Stocks in the U.S. also held their advance.
In April, Standard & Poor’s Ratings Services lowered its ratings on Greece to junk, at the time adding to the debt-laden country’s woes. Greece, seen as the epicenter of the European debt crisis, and other nations have pushed sharp cutbacks to social spending to repair battered state finances.
Last month, Greece agreed to a three-year austerity and reform program as part of a deal with the European Union and the IMF in exchange for a $133.3 billion loan package to help the country meet its financing commitments.
Last week, Greek Finance Minister George Papaconstantinou said Greece was on track to meet its 2010 deficit targets, and suggested that the country’s recession-hit economy could surprise with a less-than-feared contraction this year. The EU and IMF expect Greece’s economy to shrink by 4 percent this year, with most economists expecting the contraction to worsen as the year progresses and as recent austerity measures begin to bite.
