Mar 27, 2015 7:12 PM
Fitch downgrades Greece amid bailout uncertainty
The Associated Press
ATHENS, Greece (AP) The ratings agency Fitch has downgraded Greece's sovereign rating amid growing uncertainty over the new government's pledge to overhaul reforms needed to restart bailout loan payments and avoid default.
The agency late Friday said it had lowered the country's rating deeper into non-investment grade status from B to CCC, citing "extreme pressure on Greek government funding."
Rescue lenders are expected this weekend to start reviewing reforms overhauled by Prime Minister Alexis Tsipras' new left-wing government.
The government has promised to ax austerity measures that cut chronic deficits but kept Greece in a punishing recession for six years.
"Lack of market access, uncertain prospects of timely disbursement from official institutions, and tight liquidity conditions in the domestic banking sector have put extreme pressure on Greek government funding," Fitch said.
"We expect that the government will survive the current liquidity squeeze without running arrears on debt obligations, but ... the damage to investor, consumer, and depositor confidence has almost certainly derailed Greece's incipient economic recovery. "
Greece has been unable to borrow on international markets since 2010 due to high borrowing rates that reflect a lack of investor confidence in the country. It has relied since then on funds from a 240 billion euro ($260 billion) bailout from other eurozone countries and the International Monetary Fund.
But its creditors are refusing to release the last installments, worth more than 7 billion euros, unless the government produces an acceptable list by Monday of reforms aiming to restore the country's tattered economy.
The country faces a credit crunch, with estimates it will run out of cash sometime in April.
Earlier Friday, a government official said Greece has made clear during negotiations with the eurozone and International Monetary Fund that the country "will not continue servicing its public debt through its own means, if the creditors don't proceed directly with the disbursement of (bailout) installments delayed since 2014."
The official spoke only on condition of anonymity in line with government rules.
Euclid Tsakalotos, a minister for international economic relations, added that if negotiations don't go well, the government is prepared to risk confrontation with its partners.
"We create ambiguity with our partners about our intentions, deliberately, because they must know that we are ready for a rupture," he told the private Star television. "Otherwise you don't negotiate."
Lead lender Germany has been the most vocal critic of Athens' handling of its financial crisis.
"It is hard to know whether the (Greek) government's claim that it cannot continue servicing its debt without more bailout funds is a threat or just a statement of fact," said Megan Greene, chief economist at Manulife Asset Management.
"Either way, the German response will be the same as always: Implement reforms and you will get bailout funding, otherwise forget it."
With a severe credit crunch looming, "the only option for Greece to get money relatively quickly is to propose serious reforms on Monday and begin implementing them immediately," said Greene.
German central bank president Jens Weidmann told Germany's Focus magazine that not paying creditors would inevitably lead to default.
"If a member country of the currency union decides not to fulfill obligations, and stops the payments to bondholders, then a disorderly default in fact cannot be avoided," Focus quoted Weidmann as saying on its website.
"The economic and social consequences would be severe for Greece and anything but recommended."
He said other countries' governments "have the impression that a solution can still be reached, and are therefore continuing the talks. But we do not have much time left."
Frank Jordans in Berlin contributed.