Greek Credit Rating Cap Cut by Moody’s on Euro Exit Risk

Greece had its highest possible credit rating lowered by Moody’s Investors Service, which said there’s an increasing risk the country may exit the euro region.

Greece’s country ceiling, the highest rating that can be assigned to a domestic debt issuer, was cut to Caa2, Moody’s said in a statement late yesterday in New York. The best rating on any Greek security is currently B1, four levels higher, Moody’s said.

A Greek exit from the euro may exhaust official funding sources and rack up direct costs of 360 billion euros ($444 billion), or 3.8 percent of euro-area gross domestic product, Societe Generale SA said yesterday. Greek parliamentary elections on June 17 may drive the risk of an exit higher, according to Moody’s.

“If that were to occur, the maximum rating Moody’s would assign to Greek securities would fall further,” Moody’s said in its statement. “Although the risk of a euro exit by Greece is substantial, it is still not what it considers its ‘central case’ or most likely scenario.”

Any rating changes stemming from the new ceiling, which is Moody’s fourth-lowest junk rating, will be announced in the next week, according to yesterday’s statement.

‘Large Losses’

A Greek departure from the euro would land investors with “large losses” because of redenomination of government debt and private debt securities issued under Greek law, Moody’s said. Such a scenario would also lead to “severe disruption” to the nation’s banking system, the ratings company said.

Alexis Tsipras, head of Greece’s biggest anti-bailout party Syriza, laid out his election platform yesterday in Athens. He appealed to Greeks to give him the power to cancel the terms of an international bailout and restore pensions and wages.

A pledge to scrap the terms of the rescue loans amounts to a bet the European Union and International Monetary Fund will stop short of kicking Greece out of the 17-nation euro. Tsipras has said he’ll try to keep Greece in the euro while pledging to cancel austerity measures.

The cuts required for 240 billion euros of aid in the past two years have driven the country into the worst recession since World War II. Syriza’s plan is to revoke all austerity measures that have deepened the recession.

Syriza was propelled to second place in inconclusive May 6 elections. Failed coalition talks prompted the need for a revote. Most opinion polls show Syriza and New Democracy, which voted for the bailout, vying for first place. Neither has enough support at this point to rule alone, the surveys show.

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