Credit rating agency Moody’s downgraded Greece’s bond ratings deeper into junk status on Wednesday, a further blow to the struggling country which has been wrapping up negotiations for a vital fifth instalment of international bailout loans.

Moody’s downgraded Greece by three notches from a B1 rating to Caa1 with a negative outlook, citing increased risk that the financially stricken country will be unable to handle its debt problems without an eventual restructuring – paying creditors less than the full amount, or later than originally planned.

The agency also cited “the country’s highly uncertain growth prospects” and the missed targets in budget reforms being carried out in return for a €110 billion bailout package from the International Monetary Fund and other European Union countries that use the euro.

“The first trigger for this latest downgrade is Moody’s view that Greece is increasingly likely to fail to stabilise its debt ratios within the time frame set by previously announced fiscal consolidation plans,” the agency said, adding that the government had “failed to achieve a number of the fiscal consolidation targets in 2010.” Moody’s added that over a five-year period, about half of Caa1-rated countries, corporate or financial institutions have met their debt obligations on time, while the others have defaulted.

The Finance Ministry in Athens attributed the downgrade to “intense rumours in the printed and electronic press” and said Moody’s failed to take into account the government’s commitments in order for it to achieve its fiscal targets in 2011.

“The downgrade decision by Moody’s rating agency comes as representatives from the EU, the ECB and the IMF are in Greece to evaluate the country’s financial program,” the Finance Ministry said, adding that the government had already achieved “important fiscal targets” and was due to submit the midterm programme to Parliament in the coming days.

Prime Minister George Papandreou was also to head to Luxembourg yesterday for emergency talks with Jean-Claude Juncker, head of the group of 17 Eurozone finance ministers and Luxembourg Prime Minister. Juncker recently criticised Greece for being slow in cutting debt and reforming the public sector. As the country awaits the results of the international review, Greek central bank governor George Provopoulos described speculation of a possible Greek exit from the eurozone as “unbelievable and absurd”. EU officials said there was “good progress” in the talks, but also suggested more austerity measures would be likely.

“Once the review is concluded positively, the EU with the IMF will move on to prepare next steps in order to safeguard financial stability and to continue economic reform in Greece,” said Olli Rehn, the EU Commissioner for monetary affairs, at an event in New York. Greeks are already seeing the effects of the intensified austerity measures.

Some 7,000 civil service jobs will be placed under review. The government announced on Wednesday that 75 state agencies will be closed or restructured over the summer – the first tangible indication of possible government layoffs since the Greek debt crisis began.

The impending cuts have triggered fresh protests. Mid week, scores of unemployed protesters blocked the entrance to the Finance Ministry, while the EU and IMF debt monitors were inside the building.

The protesters moved back after briefly scuffling with riot police. Demonstrators joining a new Internet-organised protest gathered in Greek cities, while the country’s two largest labour unions announced plans to stage a central Athens protest march. Riot police were called in to escort lawmakers out of parliament late Tuesday, after some 200 demonstrators heckled deputies as they left in their cars, some spitting at and kicking the vehicles.

Source: Athens News