Crisis-hit Greece downgraded by Fitch

Greece has been downgraded by influential credit ratings agency Fitch as the country's financial crisis threatens to spiral out of control

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Elena Moya guardian.co.uk
Friday 9 April 2010 16.54 BST


Italy's prime minister Silvio Berlusconi and French president Nicolas Sarkozy attend a press conference after discussing the Greek crisis and other matters. Photograph: Pascal Le Segretain/Getty Images

Greece was today downgraded by the credit ratings agency Fitch as the country's financial crisis threatened to spiral out of control.

Fitch, one of the world's big three ratings agencies, lowered Greece's rating by two notches to BBB- and said the outlook on the country remains negative.

The move came as speculation grew that the other 15 members of the euro would arrange a fully fledged rescue of the Greek economy this weekend, following a week when jittery markets mounted a sell-off of the country's bonds.

Last night, the euro rose slightly on the back of indications that the terms of a possible rescue had been reached. Deputy finance ministers and central bankers of the 16 eurozone countries decided that any emergency loans would be made on terms almost identical to standard IMF bailouts if Greece needed them.

Earlier, the leaders of France and Italy sought to reassure markets that a financial safety net for Greece, agreed in principle at an EU summit last month, would be ready if needed. "We are ready to take action at any moment to come to the aid of Greece," said French president Nicolas Sarkozy.

However, Fitch's downgrade means the Greek government could have to pay even more money to fund the huge hole in its public finances. It needs to raise €35bn (£30bn) this year to refinance its debt, including €10bn by the end of May.

The assessment by Fitch admits Greece is likely to get outside help, but adds that the financial backstop promised last month by the eurozone and International Monetary Fund requires more clarity.

News that Greece's industrial output fell 9.2% year on year in February while inflation jumped to 3.9% in March, underscored the dire economic background to the crisis that has shaken the eurozone.

The Greek economy is forecast to contract by 2% this year after a similar fall in 2009, but some economists now expect the decline to be sharper. The downgrade reversed the short-lived improvement enjoyed by Greek bonds on Friday, relief that only lasted hours and which was based on speculation of an imminent bail-out announcement from the EU. Fitch's comments sent Greek 10-year bonds lower, pushing their yield to 7.20% from 7.12%. This rate, almost twice as much as Britain's, makes Greek funding practically unsustainable, analysts have said.

"Two notches is quite a downgrade, but it is potentially going to be junk, which would be rather upsetting," said Elisabeth Afseth, of Evolution Securities.

The price investors pay to protect themselves against a potential default of Greek bonds rose to $410,000 for $10m of debt, up from the $395,000 paid earlier in during the day.

http://www.guardian.co.uk/business/2010 ... -downgrade