Fitch cuts Greek rating and warns of mass downgrade
Greece has been downgraded by Fitch Ratings as concerns heighten that the country will leave the eurozone, while the agency has warned other members of the bloc could see their ratings cut after the next Greek election.
Greece’s long-term foreign and local currency issuer default ratings have been lowered one notch from B- to CCC in the move and its short-term foreign currency IDR has been moved from B to C.
According to Fitch, the downgrade “reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union” after anti-austerity parties proved popular in recent parliamentary elections and the country failed to establish a government.
A technocratic caretaker government took office in Athens yesterday to prepare the country for a return to the polls, which is expected to take place on June 17.
Should Greece fail to elect a government committed to the international bailout deal and its attached austerity conditions in the next election, it is “probable” that Greece will leave the eurozone, according to Fitch.
“A Greek exit would likely result in widespread default on private sector as well as sovereign euro-denominated obligations, despite a moderate sovereign debt service burden following the restructuring of Greek government bonds in March,” reports the agency.
In addition, Fitch re-states its view that a Greek exit from the eurozone could damage the sovereign ratings of other eurozone members.
“A Greek exit from EMU would break a fundamental tenet underpinning Fitch’s sovereign and other ratings in the eurozone as well as exacerbating economic and financial risks facing other [member states],” the agency explains.
“Consequently, Fitch would place all eurozone sovereign ratings on Rating Watch Negative following the Greek elections if Fitch assesses that the risk of a Greek exit from EMU is probable in the near term.”