Greece is at risk of being downgraded further into junk territory should its creditors fail to resolve their latest set of differences over the country’s bailout this month, one of the world’s leading rating agencies has warned.

Ahead of its next decision on Greece in less than two weeks, Fitch Ratings said its current “CCC” junk rating on Greece was contingent on the country securing a successful injection of its latest tranche of bailout cash “well ahead of July” when it faces a major a €7bn repayments crunch.

The warning comes as finance ministers are due to thrash out their differences at a meeting in Brussels on February 20 – their last major discussion before a raft of eurozone elections beginning with the Netherlands in March and ending with Germany in September.

Fitch has held Greece at CCC for almost two years. The rating “is underpinned by our assumption that the second review of Greece’s third bailout programme will be completed well ahead of July, maintaining access to official funding”, the agency said on Monday.

Fitch is due to make its next rating decision days after this month’s meeting of the Eurogroup on February 24. Greece has been unable to raise fresh funding on international markets since 2014, undergoing a fresh €86bn bailout in the summer of 2015 having been bought to the brink of default and introducing capital controls on its banking system.

A rating downgrade would also scupper the Syriza government’s ambitious plans to return to the bond markets before the end of its bailout in the summer of 2018.

“Recent events highlight that political risk remains a sovereign rating weakness for Greece, despite positive economic and fiscal developments”, said Michele Napolitano, senior director of sovereign ratings at Fitch.

A Greek two-year bond has sold off sharply again today, with yields surging by more than 50 basis points to nearly 9 per cent after stark comments from the country’s central bank chief over the economic consequences of its latest bailout impasse.

Market pressure has accelerated despite EU creditors’ reassurances last Friday that they were making headway with Athens and the International Monetary Fund to reach a compromise.

Greece is likely to be asked to pass around €3.6bn – or 2 per cent of GDP – in additional tax and pension reform measures through its parliament to satisfy the IMF’s worries that it is danger of missing its budgetary targets.

In return, Athens and the IMF have also been seeking promises from Germany on medium term debt relief measures to kick in after the bailout terminates in 2018.

The IMF has remained on the sidelines of the current bailout deal, and has not yet committed any fresh funds to the country until it gains reassurances it can pay off its debt pile.

Get alerts on EU economy when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments have not been enabled for this article.

Follow the topics in this article