The Greek Ministry of Finance said late Wednesday that the decision by Moody’s Investors Service to downgrade sovereign debt by 3 notches has clearly been influenced by the intense and unfounded rumours in the media, adding that the rating agency overlooks the unprecedented commitments made by the Greek Government.
According to an announcement, “the decision by Moody’s to downgrade Greek sovereign debt comes at a time when the representatives of the EU, ECB and IMF are in Greece to assess the country’s progress in implementing its economic adjustment programme. The decision has clearly been influenced by the intense and unfounded rumours in the media and disregards the unprecedented commitments made by the Greek Government to meet its fiscal target for 2011 and to accelerate its privatization programme. It is noteworthy that while the rating agency in its statement recognizes the efforts made by Greece and its renewed commitments, it preemptively proceeds with a rating cut.
The Greek Government has already met significant fiscal targets and in the next few days will submit to Parliament its Medium-term Fiscal Strategy, which will include specific commitments to continue its fiscal consolidation over the period 2012-15. Furthermore, as part of its ongoing discussions with its creditors, the Government will commit to taking concrete measures to achieve its core objective of reducing the size of the public sector and liberalizing labour and product markets in order to boost private-sector led growth and competitiveness. Moody’s decision to cut Greece’s credit rating before assessing the Medium-term Fiscal Strategy and updated Memorandum of Understanding, highlights once again that its ratings are driven more by market rumours rather than objective facts.
As for the political fatigue cited in Moody’s statement, the Government has made absolutely clear that it seeks to build the broadest possible consensus around the significant reforms that need to be made, but that in any case it is determined to implement the difficult policies the country needs to exit the crisis.”
Earlier, Moody’s had downgraded Greece’s local and foreign currency bond ratings to Caa1 from B1, and assigned a negative outlook to the ratings. The rating action concluded the review for possible downgrade that the rating agency initiated on 9 May 2011.
According to the agency, the main triggers for today’s downgrade were 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.
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