by John Galt
March 28, 2015 09:00 ET
In preparation for the impending Grexit, Fitch has decided to downgrade Greece further into junk status by reducing the rating on their credit quality to ‘CCC’. From the Greek Newspaper Ekathimerini:
Ratings agency Fitch has downgraded Greeces sovereign rating amid growing uncertainty over the new government’s pledge to overhaul reforms needed to restart bailout loan payments and avoid default.
The agency late on Friday said it had lowered the country’s rating deeper into non-investment grade status from B to CCC, citing «extreme pressure on Greek government funding.”
Rescue lenders are expected this weekend to start reviewing reforms overhauled by Prime Minister Alexis Tsipras’s new left-wing government.
The government has promised to ax austerity measures that cut chronic deficits but kept Greece in a punishing recession for six years.
“Lack of market access, uncertain prospects of timely disbursement from official institutions, and tight liquidity conditions in the domestic banking sector have put extreme pressure on Greek government funding,» Fitch said.
“We expect that the government will survive the current liquidity squeeze without running arrears on debt obligations, but … the damage to investor, consumer, and depositor confidence has almost certainly derailed Greece’s incipient economic recovery.”
Greece has been unable to borrow on international markets since 2010 due to high borrowing rates that reflect a lack of investor confidence in the country. It has relied since then on funds from a 240 billion-euro bailout from other eurozone countries and the International Monetary Fund.
But its creditors are refusing to release the last installments, worth more than 7 billion euros, unless the government produces an acceptable list by Monday of reforms aiming to restore the country’s tattered economy.
The country faces a credit crunch, with estimates it will run out of cash sometime in April.
Earlier on Friday, a government official said Greece has made clear during negotiations with the eurozone and IMF that the country «will not continue servicing its public debt through its own means, if the creditors don’t proceed directly with the disbursement of (bailout) installments delayed since 2014.”
The official spoke only on condition of anonymity in line with government rules.
With the deadline fast approaching and the American markets basically on holiday until April 6th or 7th, instability in all markets would appear to be the formula to close out the first quarter of 2015. Watch for massive moves into the US Dollar should the Grexit be announced with the potential of the Euro to match or break below parity as the losses from a Greek default become public knowledge.