Moody’s cuts Greece rating further into junk

Moody’s cut the rating one notch to Caa2, just two steps above the level signaling that a default is imminent, and left the country on “negative outlook” for another possible downgrade.

It said the taut talks ongoing between the country and European Union lenders and the International Monetary Fund show “no immediate prospect of agreement being reached on a new financing package.” 

The rating agency said the outcome of negotiations would be decided primarily at a political level on the European and Greek sides.

But it added that the outcome of such decisions “is highly uncertain and the potential for a policy accident resulting in Greece defaulting on its marketable [or commercially traded] debt, including that held by the ECB [European Central Bank], has risen.”

Moody’s added that even if a short-term funding deal were achieved, negotiations for a new bailout package in the next few months also pose huge challenges.

It questioned whether Athens would be able to meet any requirements and targets of a third bailout program, “given the weakened economy and a fragile domestic political environment.” 

To meet the challenges of running a budget surplus and cutting its debt burden, “Greece will need higher medium-term growth and political resolve,” Moody’s said.

“Recent events make both doubtful, raising further concerns over Greece’s ability to sustain financial support from official creditors over the coming years.”