Reaction to Greece’s proposed austerity package will be all important. Greece will ask the ECB to assess the plan, Bloomberg reported earlier. And the sooner, the better, for market stability. Approvals, if and when they come, will reassure investors that words will translate to actions.
In the interim, Moody’s has given cautious approval by affirming its A2 (Neg) rating.
“These new measures are a clear manifestation of the government’s resolve to regain control of public finances,” says Sarah Carlson, lead analyst for Greece within Moody’s sovereign risk group . “The onus is on the government to demonstrate that it does not merely announce ambitious plans, but is also able to deliver on these commitments.”
The ratings agency has also issued a (somewhat defensive) ten-point list on why they believe the rating is correct, including:
- The country is rich although the government is rather poor;
- Short-term liquidity risk is very limited;
- Greece’s membership of the Eurozone is sheltering the country;
- The additional fiscal measures just announced by the Greek government.
There are dire warnings should Greece stray from its proposed path, however:
A deviation from this announced plan – particularly signs that the deficit reductions will fall short of what has been promised – would lead to downgrades, in proportion with the shortfall. A multi-notch downgrade would occur if the plan was derailed rapidly and significantly, ruining the probability of a stabilization of Greece’s debt in the coming years.
