Moody’s Downgrades Greece, Shocking Local Man Just Ending Two-Year News Strike

by Mark Gongloff

Wall Street Journal
June 1, 2011

In shocking news that will shock you, Moody’s has just downgraded Greece. Yes, the Greece! Cradle of democracy and the Olympics. Apparently they have some debt issues that could possibly lead to default or something.

Eh, there’s no point in even being sarcastic about it any more. Moody’s has downgraded Greece today to Caa1 from B1, which is essentially downgrading a corpse from dead to really, truly dead.

Here’s Moody’s with the details. The major news here is that there’s a 50/50 chance of a default. OK, then:

The main triggers for today’s downgrade are as follows:


1. The increased risk that Greece will fail to stabilise its debt position, without a debt restructuring, in light of (1) the ever-increasing scale of the implementation challenges facing the government, (2) the country’s highly uncertain growth prospects and (3) a track record of underperformance against budget consolidation targets.


2. The increased likelihood that Greece’s supporters (the IMF, ECB and the EU Commission, together known as the “Troika”) will, at some point in the future, require the participation of private creditors in a debt restructuring as a precondition for funding support.


Taken together, these risks imply at least an even chance of default over the rating horizon. Moody’s points out that, over five-year investment horizons, around 50% of Caa1-rated sovereigns, non-financial corporate and financial institutions have consistently met their debt service requirements on a timely basis, while around 50% have defaulted.

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