Financial News Out Of Greece Remains Grim
Those hoping that the IMF's involvement in the Greek economy might lead to better financial news coming out of the country may be disappointed. International credit ratings agency, Moody's, has downgraded the country again.
Greece is just entering negotiations about how to draw down the fifth tranche of its $110 billion bailout fund. However, if the Greek government cannot give assurances that the country will remain solvent, the IMF may not approve the cash advance, said the chair of the group of Eurozone finance ministers, Jean-Claude Juncker.
Credit ratings agencies give their opinions as to how likely a person or organization is to default on any loan that might be made to them. International credit ratings agencies, like Moody's and Standard & Poor, do the same for whole countries.
On Thursday morning (2nd June, 2011) Moody's downgraded Greece from a B1 rating to a Caaa1 rating, which is just five points above being in default. The rating indicates that Moody's estimates that there is a 50% likelihood that Greece will default on its loans in the next year.
The bad news from Moody's continued as, in a statement, they implied that a further downgrade was possible, if not likely, and made it clear that the outlook in Greece, in their opinion, was not good.
The Greek finance minister responded by suggesting that the downgrade in their rating had been driven by press speculation. He said that the new rating failed to take into account the austerity measures that the Greek government had put in place in order to balance their books.
This new rating was based, in large part, on the fact that Moody's does not think that Greece can stabilize its debt ratios in the time in which they had said they would. In essence, Moody's thinks that whatever measures Greece is already taking will be insufficient to stop its debt spiraling. Not the most encouraging financial news.
Last year, in order to secure the bailout money, Greece agreed to an 'austerity package' with the IMF. This involved privatizing state-owned industries and cutting back on expenditure on welfare and social programs. It has not, however, had as much effect on the Greek economy as the IMF would have hoped.
Mr Juncker is trying to arrange a debt holiday for Greece, in which they would not make repayments on their shorter-term loans, and which could be used to consolidate their fragile economic position. As this holiday would be voluntarily allowed by the lenders, Mr Juncker hopes that the international credit ratings agencies would not treat it like a default.
In the past the European Central Bank has implied that it would be opposed to any debt holiday for Greece. However, a Reuters report from Wednesday (June 1st, 2011) contains a statement from a member of the ECB that suggests that they may be warming to the idea, especially if the alternative is to have Greece default completely. There are now suggestions that a voluntary scheme may be acceptable to some of Greece's lenders.
This downgrade is another unwelcome item of financial news for Greece's economy after a turbulent year. It remains to be see if the 'debt holiday' can be organized.
