Greek rating cut sparks fear in eurozone

Tue, Mar08, 2011
By Daily Mail

The debt crisis in the eurozone deepened yesterday after the rating on Greek debt was slashed by three notches.

Greece's credit score was cut from Ba1 to B1 - lower than Egypt and deeper into 'junk' status - by Moody's Investors Services.

It sent a ripple of anxiety through the financial markets and drove up borrowing costs in Europe's most risky economies, including Portugal.

The move also increased pressure on eurozone leaders to ease the repayment terms on emergency loans to Greece and Ireland.

It caused outrage in Athens where the Greek finance ministry called for tighter regulation of the rating agencies which failed miserably in the lead up to the financial crisis.

'Ultimately, Moody's downgrading of Greece's debts reveals more about the misaligned incentives and the lack of accountability of credit rating agencies than the genuine state or prospects of the Greek economy,' said a Greek finance ministry spokesman.

Having completely missed the build-up of risk that led to the global financial crisis in 2008, the rating agencies are now competing with each other to be the first to identify risks that will lead to the next crisis.'

Moody's said 'endemic tax evasion' and 'very ambitious' austerity measures meant Greece may struggle to repay its debts.

Sarah Carlson, Moody's senior analyst for Greece, said the risk of a default 'has materially increased'.

European leaders are at loggerheads over how to deal with the deepening crisis. EU monetary affairs commissioner Olli Rehn said: 'There is a case to reduce the interest rates paid by Greece and Ireland.' But Germany is opposed to such action.

Greek borrowing costs rose to 12.2% while yields on Portuguese bonds hit a record high of 7.5% and Irish debt was at 9.27% - similar to when it was rescued in November.