GREECE HAS seen its credit rating cut as the country races to complete preparations for a deal to trim its debt by up to €107 billion in its second EU-IMF bailout.
With demonstrators against austerity out in force on the streets of Athens yesterday, it must execute a long list of “prior actions” outstanding from its first bailout within days to ensure the new rescue goes ahead.
Thousands of trade unionists, pensioners and communists gathered in the central Syntagma Square in front of the Greek parliament.
Further protests are planned today when doctors and other medical staff stage a 24-hour strike.
However, Greek finance minister Evangelos Venizelos said the second rescue would be sufficient to tie the country to the euro.
“The Brussels agreements are of historic significance,” he said.
Greece aims to trigger the legal process to execute the debt-swap before the end of this week.
The private holders of some €200 billion in Greek bonds are set to take a €107 billion loss in the face value of their investment under the deal.
An illustration of the challenge facing Greece came when Fitch credit rating agency lowered its grading of the country’s debt.
“In Fitch’s opinion, the exchange, if completed, would constitute a ‘distressed debt exchange’ in line with its criteria and consequently yesterday’s announcements set in motion the agency’s process for reviewing Greece’s issuer and debt securities ratings,” it said.
“Fitch considers that the proposal to reduce Greece’s public debt burden via a debt exchange with private creditors will, if completed, constitute a rating default.” The official spokesman for EU economics commissioner Olli Rehn declined to comment on the downgrade, which was signalled by Fitch at the outset of talks on the debt deal.
Uncertainty about the bailout persists. Dutch finance minister Jan Kees de Jager, one of the staunchest critics of Greece in months of talks on the bailout, said it was essential for Greek leaders to stay the course.
"To be honest, I have doubts, but it's the best we could do," he told Le Monde.
He also called for the lending capacity of Europe’s two rescue funds – the temporary EFSF and permanent ESM, which comes into force this summer – to be combined to boost the “firewall” against the crisis.
The necessity for such a move is questioned by Germany.
European leaders have pledged to review the size of the ESM next month.
In Berlin yesterday the chief spokesman for chancellor Angela Merkel said that Germany saw no need to expand the ESM, whose lending capacity under current plans will be €500 billion.
