Page last updated at 10:04 GMT, Tuesday, 22 December 2009

Greece debt rating downgraded by third agency

George Papandreou, 14 December 2009
Prime Minister Papandreou has announced a series of spending cuts

A third credit ratings agency has downgraded Greek government bonds over concerns about the country's ability to reduce its high levels of debt.

Moody's is the third of the three major international agencies to downgrade Greece, following similar moves by Fitch and Standard & Poor's.

Analysts reacted positively to the downgrade, to A2 from A1, which was not as severe has some had expected.

Greece has announced big spending cuts to reduce its levels of debt.

But these were not enough to satisfy Moody's.

"The country's longer-term risks have only partly been offset by the government's policy response," the agency said.

'Positive surprise'

Moody's was widely expected to follow its fellow ratings agencies in downgrading Greece.

But the fact that it only downgraded government bonds by one notch surprised some. Fitch and Standard & Poor's had downgraded the bonds further.

"It was a relatively positive surprise, given the rumours circulating in the market for a two-notch downgrade," said Platon Monokroussos at Eurobank.

Analysts said the size of the move was important.

"Greece remains in the A zone, so that reduces the risk of Greek bonds not being eligible for the European Central Bank's (ECB) funding even after the end of 2010," said Paris Mantzavras at HSBC Pantelakis Securities.

Despite the downgrade, Moody's said that Greece was "extremely unlikely" to face short-term liquidity or refinancing problems.

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