Moody’s downgrades Greece to junk status

Moody’s downgrade follows Standard & Poor’s decision in April to give Greek bonds junk status. 

Greece’s debt increased to 13.6 percent of its GDP in 2009, but a $1 trillion European Union and International Monetary Fund bailout for Eurozone countries, approved in May, is saving the country from default. 

“The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package,” said Sarah Carlson, Moody’s lead analyst for Greece. 

“The package effectively eliminates any near-term risk of liquidity-driven default and encourages the implementation of a credible, feasible and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels.” 

Still, Moody’s determined that the risks are “substantial” and “more consistent with a Ba1 rating.” 

The country has vowed to follow through with painful austerity measures by cutting pensions and salaries while raising indirect taxes, with the aim of decreasing the deficit to 2.6 percent in 2014. The announcement of the program spurred strikes and strong union reaction. 

Moody’s called the austerity package “very ambitious.” 

Greece will need to stay on its deficit-cutting track for the bailout money flow to continue.