And Moody's...

Tyler Durden's picture

Moody's Investors Service has today placed Greece's B1 local
and foreign currency government bond ratings on review for possible downgrade.

Moody's decision to initiate this review was prompted by:

(1) revisions to fiscal metrics, most notably the significant upward
revision of the 2010 general government deficit;

(2) increased uncertainty about the sustainability of Greek sovereign
debt in the context of potential delays in the achievement of fiscal consolidation
targets; and

(3) concerns about the probability and the implications of a delayed and
weaker economic recovery.

Moody's review will focus on the factors that will drive the country's
debt dynamics over the next few years.

Moody's says that a multi-notch downgrade is possible if
it concludes that there is large risk that Greece's debt metrics
are on an unsustainable path. In Moody's view, such
conditions would materially increase the risk of debt restructuring over
the short to medium term. Under such conditions, euro area
policymakers have stated that future loans from the Exchange Stability
Mechanism would be extended only if private creditors were to bear some
of the losses. If the path of Greek debt-to-GDP were
to appear unsustainable, then Greece might itself have an incentive
to seek a change in the terms of its debt obligations.

Greece's country ceilings for bonds and bank deposits are unaffected
by the review and remain at Aaa (in line with the euro area's rating).
At this point of time, however, due in large part to systemic
risk within Greece, the highest rated domestic issuer or securitization
is rated A3.


The Greek fiscal and economic reform package remains at least as ambitious
as it was when Moody's last reviewed the government's rating.
Moody's continues to believe that the government will face a very
significant challenge in meeting the targets stipulated by this package.
Additionally, Moody's notes a series of recent setbacks that
prompted it to initiate this review of Greece's ratings.

First, Greece's 2010 general government deficit has come in
at 10.5% of GDP, which is significantly higher than
the levels estimated by government and international observers earlier
this year. This increase in the 2010 budget deficit relative to
prior expectations is due to higher-than-expected budget
deficits at the local government level and at government-owned
hospitals, along with generally disappointing tax and social contribution
collections due to the slowing of economic activity.

Second, when combined with ongoing difficulties in tax revenue generation
and collection, this larger 2010 deficit outcome raises further
questions about the government's ability to achieve the deficit
reduction target for 2011.

Third, Moody's is concerned about signs that the potential
need for an additional fiscal austerity programme is likely to deepen
and prolong the recession and may further undermine domestic political
support for the reform programme.


In light of the growing challenges that the Greek government's economic
and fiscal adjustment programme faces, current market sentiment
as well as sustained commentaries about the likelihood of a debt restructuring,
Moody's views Greece's return to financial markets in 2012
as increasingly unlikely. Through discussions with both the Greek
government and the Troika, the review will also attempt to ascertain
the relevance of the increasingly public discussion -- based in part
on comments by unnamed public officials with apparent in-depth
knowledge of ongoing discussions -- about different ways for the
Greek government to restructure its government debt (most of which would
be captured by Moody's default definition). A restructuring could
come about either due to a unilateral action on the part of Greece,
or through a framework jointly developed by Greece and the Troika,
perhaps in the context of the provision of additional official support
through the ESM in 2013. The Troika's decision about whether
or not to support or require a restructuring may depend, in part,
on the likely contagion effect of a Greek restructuring on other European
sovereigns, on the capital strength of the ECB, and on Greek
banks as well as non-Greek banks with exposures to Greece.
Moody's ratings review will therefore partly focus on the costs
and benefits of a possible restructuring of Greece's debts,
as a supplement to Moody's debt sustainability analysis.

In addition, Moody's intends to closely review the feasibility
of the government's privatization plan, since it plays a key
role in the government's fiscal strategy for 2011-2015.
In Moody's view, a successful execution of the government's
privatisation plan is essential if the government is to achieve a sustainable
debt position. Moreover, while the money raised through successful
execution will have a direct impact on the debt reduction programme,
Moody's also believes that the Greek government's approach
to implementing this programme is a valuable signal of its ability and
willingness to overcome broader political and institutional challenges
to the reform process. During the review, Moody's will
assess the credibility of the privatisation targets and consider what
steps the government plans to take to avoid the privatisation process
being materially delayed by these factors. State asset sales realised
during the review process could be considered during the review process.

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redpill's picture

If even Moody's is downgrading then the party really is over.  Or more accurately, already ended.

Chris Jusset's picture

Actually, Moody's typically waits until a country has totally collapsed before it issues a downgrade.

SheepDog-One's picture

Well same case with S&P, who never dowgraded Enron from AAA until the day it was under $1 and declared bankrupt. 

nope-1004's picture

This is all stage setting for QE3.  First take down metals from the "speculators", then reign in oil, increase margin requirements, then get the various firms to downgrade EU, on and on.

This play has very bad actors and an even less credible writer.


firefighter302's picture

I agree about QE3 coming and the EU downgrades.  But I'm not so sure about oil being "reigned in".


sheeple's picture

anyone that works for moody's should have their head exam; full of sheeps and liars

firstdivision's picture

So that explains the goosing of the markets.  Gotta get them up prior to Moody's release.

Dick Darlington's picture

Seriously, is someone STILL paying for their services?

Zero Debt's picture

Moody's revenue 2010 was $2 billion.

buzzsaw99's picture

Moody's is a pack of criminals imo.

extortion, blackmail, conspiracy to defraud. Moody's is the total package bitchez.

redpill's picture

Maybe they should move their headquarters to Nye County, Nevada, where being a whore isn't against the law.

Dr. Engali's picture

The euro is toast....the dollar is toast....the euro is long before the sory moves back to the dollar being toast? It's a bullish though. Just BTFD!

LawsofPhysics's picture

Bah ha ha.  Stay ahead of the hot potato!

MacedonianGlory's picture

Papandreou will face jail

edotabin's picture

No. He will ask the prosecutor to examine why someone posted a single bad word about Greece's debt rating.

Jack Mehoff's picture

Aren't they supposed to rate before the shit hits the fan?

Zero Debt's picture

No, they have to wait until the shit stops hitting the fan and the fan stops spinning, so the cumulative quantity and distribution can be assessed objectively. Thereafter the new rating will be issued.

Just like in olympic diving, you rate after the jump is completed. Anything else would be presumptuous.

Ruffcut's picture

When My bank account has all zeros, I shall further review and evaluate whether I am broke, or not. Maybe just a downgrade is all that is necessary.

kushmere's picture

Moody's Investor Service Report

May 9th, 2011


We are happy to report that Ruffcut has received an Aaa rating due to strong demand. His market position is somewhat leveraged, and cash on hand is low. The strengths of Ruffcut are his management, strong political connections, and innovative accounting department. Primary product sales are down, but we believe fresh capital will only result in high earnings in the long-term. 

Josephine29's picture

Whilst we see all sorts of talk and hyperbole so much is hidden and not understood. I wonder how many are aware of what is something of a scandal and is explained below.Sooner or later Europe's taxpayers will wake up to this.

As to debt restructuring the Euro zone has by a combination of incompetence and dithering got itself into a position where a lot of the restructuring would take place on the books of the European Central Bank! They are fortunate that the vast majority of their taxpayers and voters do not understand what has taken place here. In fact it is worse than that as the accountancy used is that of the madhouse which declares the interest-rate profits but assumes that capital losses cannot happen! Yes a position which can only have large losses as we stand is declaring a profit…

stormsailor's picture

Captain Obvious, We Salute You

Piranhanoia's picture

Fertilizer is of far more value than the ratings agencies. Shit doesn't lie.

bugs_'s picture

we've got your multi-notch downgrade right here

Clowns on Acid's picture

So if the markets won't buy Greek souvlakai debt (instead of int pymts why not accept some olive oil or a Greek island instead?), and let's say that the holders of Greek debt get a 50% haircut, then stock market must go up (except European banks) as surely ECB will provide "liquidity".

Ok, but what happens to US bond market? IMHO must be sold.

riley martini's picture

 Moodys' is a criminal organization nothing has changed  in Greece the only change is the people that are paying Moodys' for their rating have placed bets to profit from the rating . The same way Goldman and Moody teamed up to defraud Widows and Orphans : Pensions , charities and schools.

slewie the pi-rat's picture

"(3) concerns about the probability and the implications of a delayed and weaker economic recovery."

buffett started reading zH after what Rush published!