Greece Cut to Junk Status

Is anyone surprised?

ATHENS, Greece — Moody's Investors Service on Monday slashed Greece's credit rating to junk status, as a delegation from the International Monetary Fund and the European Union started an interim review of the country's efforts to pull itself out of a major debt crisis.

A Moody's statement said it was cutting Greece's government bond ratings by four notches to Ba1 from A3, with a stable outlook for the next 12-18 months. It was the second of the three major agencies to accord Greek bonds junk status since Standard & Poor's did the same in late April.

The downgrades reflects concern that the country could fail to meet its obligations to cut its deficit and pay down its debt.After amassing a vast public debt and overspending that sent its budget deficit spiraling to 13.6 percent of gross domestic product in 2009, Greece was saved from defaulting on its loans in May by the first installment of a joint EU and IMF euro110 billion bailout. It is to receive the second in September.

"The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package," said Moody's lead analyst for Greece Sarah Carlson.

"The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels.""Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating."

I guess the positive spin from Moody's is that as bad as Greece has gotten, the austerity package will make it a somewhat stable situation for the next year or two.