(AA) – Credit rating agency Moody’s downgraded Greece’s government bond rating Thursday over concerns about bailout negotiations with the country’s European creditors.
Bonds were lowered to “Caa2” from “Caa1,” Moody’s said in a statement Thursday.
A “Caa2” rating is historically associated with roughly one-in-four probability of default over a two-year horizon, the statement said.
The outlook on the rating is negative, the statement added.
Moody’s cited “the high uncertainty over whether Greece’s government will reach an agreement with official creditors in time to meet upcoming repayments on marketable debt,” as the key driver behind the downgrade.
And, even if an agreement was reached, Moody’s warned that the risks of a follow-up, medium-term financing program, given the weakened economy and a fragile domestic political environment, were considerable.
There was particular concern, the statement said, for political determinations to affect the negotiations. Even though the negotiations were making progress, the statement said, and a new urgency was seen since the change in the Greek negotiating team, the final decision would be made at the political level on both sides, and this made the outlook uncertain.
Recently, the role of Greek Finance Minister Yanis Varoufakis in the negotiations had been limited, with principal responsibility now given to Greek Member of Parliament Euclid Tsakalotos.
Concurrently, Moody’s has lowered the country’s local- and foreign-currency bond ceilings to “B3” from “Ba3,” which reflects the increased probability that Greece may exit the euro area in the event of a sovereign default.