Petros Giannakouris, Associated Press
ATHENS, Greece — The Fitch ratings agency downgraded Greece's debt grade by three notches further into junk status on Friday, another blow to the debt-ridden country which saw its borrowing rates spike to new record highs.
Fitch cited problems with Greece's implementation of essential reforms to its economy, which European officials have said are behind schedule and need to be broadened.
The downgrade "reflects the scale of the challenge facing Greece in implementing a radical fiscal and structural reform program necessary to secure solvency of the state and the foundations for sustained economic recovery," the agency said.
It cut Greece's long-term sovereign rating to B+ from BB+ — a move which the government criticized as having been influenced by media rumors and a failure to consider the additional commitments Athens has made.
Many have said the sheer size of Greece's debt, which stood at over €342 billion ($488 billion) in 2010, combined with a budget deficit of 10.5 percent of GDP, means the country will eventually have to restructure its debt — pay creditors later or less than the full amount owed.
Top European officials disagree over whether that is a viable option. The European Central Bank opposes the idea, with chief economist Juergen Stark indicating the ECB would cut off Greek banks from emergency credit support if that happened.
His comments contrasted with those of other top European Union officials, who have said they would not exclude a voluntary stretch-out of bond repayments.
Earlier this week, Jean-Claude Juncker, who heads the group of 17 eurozone finance ministers, said he "wouldn't exclude" a voluntary delay to repayments, but warned any such move would only be considered after Greece makes more efforts to raise money from privatization and budget cutting.
Amid the uncertainty, Greek borrowing costs spiked to record highs, with interest rates on 10-year bonds hovering around 17 percent. The high interest rates demanded by investors indicate they fear Greece cannot repay its debts.
For the past year, Greece has been relying on funds from a €110 billion package of bailout loans from the International Monetary Fund and other eurozone countries. In return, it has been implementing strict austerity measures.
European officials, however, have warned Greece it is slipping from its targets and needs to urgently speed up reforms, including a €50 billion privatization program.
A delegation from the EU, the ECB and IMF is currently in Athens reviewing progress in reforms required for the country to receive the next batch of bailout loans, worth €12 billion.
"Implementation and political risk have risen as further fiscal austerity measures are required to realize the 2011 budget deficit goal of 7.5 percent of GDP due to the under-performance of tax receipts and higher deficit outturn for 2010 than originally targeted," Fitch said.
It added that Greece also faced problems in pushing through its plan to privatize state assets.
"The greater emphasis on privatization has heightened the risk that the policy conditional funding under the EU-IMF program will be delayed given the political and technical obstacles to the realization of €50 billion of asset sales," the agency said.
The government, which has often accused ratings agencies of not basing their downgrades on facts, said Fitch's action Friday "comes at a time when the country's economic adjustment program is still being reviewed by the European Commission, the European Central Bank and the IMF (International Monetary Fund), and amidst intense and unfounded rumors in the media."
- Better than a raise: The smallest thing you...
- Many Mormon missionaries who return home...
- WestJet airline video goes viral as Santa...
- Adjunct professors unionize for respect and...
- Little difference between PG-13 and R-rated...
- Looking beyond the premium is a 2-tiered...
- NTSB: Pilot in San Francisco plane crash...
- Health care signups increase to 364,682;...
- Judge orders Colo. cake-maker to serve... 124
- Can Mandela's legacy revive the GOP? 30
- Health care debate about presidential... 24
- Space and religion: How believers view... 24
- Health care signups increase to... 20
- Looking beyond the premium is a... 16
- India's Supreme Court upholds anti-gay... 14
- The American Dream is still alive for... 11