Moody’s drops Greece to Caa2

Moody's Investors Service said it downgraded Greece's government bond rating to Caa2 from Caa1.

The short-term rating is unaffected and remains at Not Prime.

The outlook is negative. Moody's government bond rating applies to debt issued on private sector terms only.

This action concludes the review for downgrade that began on Feb. 6.

Moody’s said the key drivers behind the downgrade are:

• The high uncertainty over whether Greece's government will reach an agreement with official creditors in time to meet upcoming repayments on marketable debt;

• The significant implementation risks of a follow-up, medium-term financing program even if an agreement is reached, given the weakened economy and a fragile domestic political environment; and

• The negative rating outlook reflects Moody's view that the balance of economic, financial and political risks in Greece is slanted to the downside.

Concurrently, the agency 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.

The agency also lowered the local- and foreign-currency bank deposit ceilings to Caa3 from Caa1 to capture the heightened risk of a deposit freeze, if depositor confidence weakens further. The short-term local- and foreign-currency bond and deposit ceilings remain Not Prime (NP).

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