Greece May See `Multi-Notch' Rating Cut by Moody's Depending on Aid Accord

Greece’s credit rating may be hit by a “multi-notch” downgrade by Moody’s Investors Service if the government doesn’t cut the budget deficit enough or the European Union fails to agree a united response to its crisis.

Moody’s, which has an A3 rating on Greece, will make a decision after the government announces the budget steps agreed on with the International Monetary Fund and the EU. An accord may be announced in coming days.

“‘Should, however, the mobilization of external support continue to be fractious and/or should the Greek government and people fail to fully deliver on and acquiesce to ambitious policy adjustments, Moody’s indicates that this would inflict significant damage to Greece’s creditworthiness,” the rating company said in a statement.

Greek bonds slumped this week after Standard & Poor’s downgraded its rating on the country to junk. Prime Minister George Papandreou’s government has nearly negotiated the terms of a bailout with the EU and the IMF.

The country’s largest union has already denounced some measures, which may include three-year wage freezes, as “unjust.” Greece’s NET Radio said cuts may amount to 10 percentage points of gross domestic product, equivalent to around 24 billion euros. The deficit was 13.6 percent of GDP in 2009.

Moody’s previously indicated the scale of the downgrade “will depend on the level of ambition of the multi-year economic and fiscal program.”

To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.net; Bill Koenig at wkoenig@bloomberg.net

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