Moody’s Downgrades Greece

The euro fell to a twelve month low against the dollar after Moody’s Investors Service cut Greece’s rating for the second time this year. After the downgrade the euro fell to $1.3260 the lowest since May 2009. Moody’s cut Greece’s rating to A3 and indicated further downgrades are possible unless Greece manages to calm markets. Moody’s also said that Greece’s debt figures will likely be higher than previously thought. Moody’s Senior Analyst for Greece Sarah Carlson stated, “It is unlikely that the rating will remain at A3, unless the government’s actions can restore confidence in the markets and counteract the prevailing headwinds of high interest rates and low growth that could ultimately undermine the government’s ability to sustainably cut debt levels.” Prime Minister George Papandreou has spent seven hours in talks with finance ministers on how to address the escalating crisis. Nick Kounis of Fortis stated, “It looks like a terrible situation just got worse.” The austerity measures have caused social unrest throughout Greece. Tens of thousands of Greek public workers including nurses and teachers staged a one day strike to protest the austerity measures. Over 10,000 government workers and students protested to Parliament saying that the Athens government should resist pressure for more spending cuts.

EU Officials Revising Original Debt to GDP Figures

The Athens government posted debts of 32.34 billion euros which equals 13.6% of GDP, higher than the 12.7% posted earlier. The government also said that the deficit may have to be revised again due to concerns about Greece’s accounting procedures and uncertainty about the quality of data from the government. Earlier in the year EU and Greek government officials set a target of 8.7% of GDP but now officials on both sides appear to be backing away from the original target. European Commission spokesman Amadeu Altafaj stated, “The target for 2010 is a four percentage point reduction of the deficit. We did not refer to the starting point or the arrival figure, only the reduction effort. Greece is on track to meet the target for 2010; that is what counts.”

Inaccuracies in Greek Data

Financial markets were hit by the new target revision because of inaccuracies in Greek data and many believe that the inaccuracies were deliberate and politically motivated. The inaccuracies have prompted anger among investors and other EU partners. Giada Giani, a Citigroup economist, stated, “What concerns me is the general uncertainty about the Greek official figures. This affects market perception about Greece …that one can’t rely on the Greek statistics and that the deficit is revised up and up and up.”

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