Greece credit rating downgraded by Fitch
Greece’s woes intensified today after ratings agency Fitch downgraded the country’s credit rating amid fears over its rescue plan.
Fitch downgraded Greece’s rating by two notches, from BBB+ to BBB-, as the cost of Greek borrowing continues to soar.
The BBB- rating is significant since it is the lowest rating that qualifies as an investment grade bond.
Last month a deal was reached to help Greece manage its debt crisis. A rescue package totalling €22 billion (£20 billion) is set to include help from the International Monetary Fund (IMF).
However, so far the euro zone has avoided seeking an IMF loan for Greece, opting for a solution closer to home to maintain global confidence in the euro.
Should the IMF get involved, the euro (which has already lost more than 7% against the dollar this year) is likely to de-value even further, with markets concerned that an IMF rescue will damage the euro’s credibility.
The European Union said it is prepared to help the country and EU President, Herman van Rompuy, said the EU-IMF rescue plan would prove credible once it was put into place.
“The Greek government is courageous and is breaking with the past. We would be ready to intervene if the Greeks ask us to,” said Rompuy.
Greece now has the same credit rating as Brazil, Panama, Morocco and Namibia.
Meanwhile, it currently has the highest debt of the 16-member euro zone, at €300 billion (£273 billion) and its economy is considered to be the euro zone’s weakest.
The country is currently taking action to reduce its public deficit from 12% to 8% of GDP this year.
Its recovery plan involves borrowing on the bond markets and an austerity programme of spending cuts and rising taxes, which has led to national strikes throughout the country.
However, fears and confusion over what Greece plans to do about its debt crisis is making investors nervous.
Many analysts believe it is becoming increasingly likely that the Greek government would seek a rescue from the EU and IMF.
Greek finance minister, George Papaconstantinou, said he has not asked for the rescue plan to be activated, but said: “We have said that Greece does not intend to make use of the mechanism but it is very important for our country for this safety net to exist.”