The Fitch ratings agency downgraded Greece's debt grade by three notches further into junk status on Friday, another blow to the debt-ridden country that saw its borrowing rates spike to new record highs.
Fitch cited problems with Greece's implementation of essential reforms to its economy, which European officials have said are behind schedule and need to be broadened.
The downgrade "reflects the scale of the challenge facing Greece in implementing a radical fiscal and structural reform program necessary to secure solvency of the state and the foundations for sustained economic recovery," the agency said.
It cut Greece's long-term sovereign rating to B+ from BB+ - a move which the government criticized as having been influenced by media rumors and a failure to consider the additional commitments Athens has made.
Many have said the sheer size of Greece's debt, which stood at over euro342 billion ($488 billion) in 2010, combined with a budget deficit of 10.5 percent of GDP, means the country will eventually have to restructure its debt - pay creditors later or less than the full amount owed.
Top European officials disagree over whether that is a viable option. The European Central Bank opposes the idea, with chief economist Juergen Stark indicating the ECB would cut off Greek banks from emergency credit support if that happened.
His comments contrasted with those of other top European Union officials, who have said they would not exclude a voluntary stretch-out of bond repayments.
Earlier this week, Jean-Claude Juncker, who heads the group of 17 eurozone finance ministers, said he "wouldn't exclude" a voluntary delay to repayments, but warned any such move would only be considered after Greece makes more efforts to raise money from privatization and budget cutting.
Amid the uncertainty, Greek borrowing costs spiked to record highs, with interest rates on 10-year bonds hovering around 17 percent. The high interest rates demanded by investors indicate they fear Greece cannot repay its debts.
For the past year, Greece has been relying on funds from a euro110 billion package of bailout loans from the International Monetary Fund and other eurozone countries. In return, it has been implementing strict austerity measures.
European officials, however, have warned Greece it is slipping from its targets and needs to urgently speed up reforms, including a euro50 billion privatization program.
A delegation from the EU, the ECB and International Monetary Fund is currently in Athens reviewing progress in reforms required for the country to receive the next batch of bailout loans, worth euro12 billion.
"Implementation and political risk have risen as further fiscal austerity measures are required to realize the 2011 budget deficit goal of 7.5 percent of GDP due to the under-performance of tax receipts and higher deficit outturn for 2010 than originally targeted," Fitch said.
It added that Greece also faced problems in pushing through its plan to privatize state assets.
"The greater emphasis on privatization has heightened the risk that the policy conditional funding under the EU-IMF program will be delayed given the political and technical obstacles to the realization of euro50 billion of asset sales," the agency said.
The government, which has often accused ratings agencies of not basing their downgrades on facts, said Fitch's action Friday "comes at a time when the country's economic adjustment program is still being reviewed by the European Commission, the European Central Bank and the IMF, and amidst intense and unfounded rumors in the media."
The downgrade "ignores the additional commitments that the Greek government has already made in order to achieve its fiscal targets for 2011, and to accelerate the privatization program," the Finance Ministry said, adding that the specific policies for these commitments would be announced after the current evaluation is complete.
Speaking earlier in the day, Prime Minister George Papandreou insisted the country will repay all its loans.
"Of course, the deficit is the reason the debt is increasing, it is also the reason that markets are expressing reservations as to whether we can cope or not," he said.
"It is the reason we are forced to ask for help from our partners ... to depend on their help, on their loans," he stressed. "And, of course, I want to say here that we will pay back these loans."
© Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.