Fitch Downgrades Greece's Credit Rating To One Step Above Default

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GREECE DOWNGRADE

ATHENS, Greece — Greece suffered another sovereign downgrade on Wednesday, when the Fitch agency slashed its credit worthiness by three notches further into junk status and only one grade above default.

The agency cut Greece's rating from B+ to CCC, bringing it broadly in line with the other two major agencies, Moody's and Standard and Poor's, which had downgraded the country's bonds to a similar level last month.

Greece relies on loans from a euro110 billion ($155 billion) international bailout from other eurozone countries and the International Monetary Fund, and discussions are under way for a second bailout to keep the country's crisis from destabilizing other larger European economies.

However, no decisions have been made so far on how much more help Greece will get or in what way private holders of Greek bonds could contribute toward easing repayments.

Credit ratings agencies have warned they could consider a voluntary rollover of Greek debt as a form of default.

"Today's rating downgrade reflects the absence of a new, fully-funded and credible EU-IMF program for Greece, coupled with heightened uncertainty surrounding the role of private creditors in any future funding, as well as Greece's weakening macroeconomic outlook," Fitch said in a statement.

While the main aspects of further help were discussed at a meeting of EU finance ministers earlier in the week, "no further clarity on the volume and the terms of new money or the nature of private sector participation was forthcoming," Fitch said.

The Greek government expressed surprise at the downgrade, saying the EU finance ministers' meeting had decided to have the new program in effect by mid-September – when Greece is due to receive the next installment of its bailout payments – while the precise form of private participation is still being worked out.

"It is therefore bewildering why Fitch went ahead with today's rating action, despite the fact that the timetable of eurozone's and IMF's actions is known and adhered to," a Finance Ministry statement said.

"Today's rating action by Fitch does not affect the Greek banking system, and this will become clear as soon as the new program comes into effect," the statement added.

In an interview with Germany's Financial Times Deutschland, Prime Minister George Papandreou urged EU leaders to expedite their decisions on the new program.

He also said he is "open to" the idea of Greece buying back part of its debt with funds provided by its European partners, according to a translation provided late Wednesday by Papandreou's office.

Explaining the downgrade, Fitch also noted that Greece has been missing fiscal targets set out as conditions for receiving the first bailout, from which it began drawing funds in May last year.

"Fitch's 'CCC' rating encapsulates substantial credit risk and acknowledges that default is a real possibility," the agency said. "As previously stated by Fitch, private sector involvement would likely be viewed as a sign of sovereign credit impairment and could trigger a rating default event."

The move came as the IMF said Greece's government must move quickly and decisively to bring its huge public debt under control.

To the outrage of labor unions across the country, Greece's government has embarked on a punishing new round of austerity measures after missing its deficit-cutting targets so far in 2011. Spending cuts and tax hikes have already sparked frequent strikes and demonstrations, with protests often turning violent in central Athens.

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