– Fitch Cuts Greece as Leaders Spar Over Euro Membership (Bloomberg, May 17, 2012):
Greece’s credit rating was downgraded one level by Fitch Ratings on concerns the country won’t be able to muster the political support needed to sustain its membership in the euro area as leaders began campaigning ahead of the second national vote in six weeks.
Greece was cut to CCC from B-, according to an e-mailed statement late yesterday in London. The country’s ceiling was revised to B-, Fitch said in the statement.
“The strong showing of ‘anti-austerity’ parties in the May 6 parliamentary elections and subsequent failure to form a government underscores the lack of public and political support” for the country’s bailout from the European Union and International Monetary Fund, Fitch said in the statement. Failure to form a government that would implement the bailout terms would mean a “probable” exit from the currency union, Fitch said.
Greece swore in a caretaker government led by Panagiotis Pikrammenos yesterday as the leaders of the two biggest parties clashed over how the country could stay in the 17-nation euro region. The new vote follows inconclusive elections that propelled the Syriza party, which wants to annul the bailout, into second place. Most opinion polls since the election have shown that Syriza may build on that support to come first in any rerun, complicating Greece’s efforts to avoid running out of cash by early July.
The political turmoil has reignited concern the country will renege on pledges to cut spending as required by the two separate rescue packages worth 240 billion euros ($305 billion). That could lead to funding being cut off and has raised the specter of the country leaving the euro.
The euro fell to a four-month low as Spain’s borrowing costs rose at an auction, stoking concern that the euro region’s financial woes are spreading from Greece. Europe’s shared currency remained lower against most of its major counterparts after the Fitch cut.
Fitch said it would place all euro area sovereign ratings on Rating Watch Negative following the Greek elections if the risk of a Greek exit from EMU is probable in the near term. By revising Greece’s country ceiling to B-, from the AAA previously assigned to all euro-area countries, it effectively set a cap on the ratings of all Greek issuers.
“Greece’s membership of the euro is not endangered by Syriza,” leader Alexis Tsipras said in a speech to his party’s lawmakers on state-run NET TV yesterday. “It is endangered by the bankrupt policies of the bailout.”
The conflict between Tsipras, who opposes the austerity demanded by the European Union bailout, and Antonis Samaras, leader of New Democracy, points to the June 17 vote as a referendum on Greece staying in the currency bloc.
An opinion poll showed Samaras edging ahead of Tsipras in support, the first such reading since the May 6 election, raising hopes he can team with another pro-bailout party to form a government.
“We’ll go down to the wire it seems,” said Lefteris Farmakis, a strategist at Nomura International Plc in London. “Syriza has the momentum still, but people may start thinking in terms of the likely negative consequences of Syriza’s views for Greece’s European future.”
“The battle that is beginning, the elections, isn’t about any one party,” Samaras told his lawmakers. “It is about whether Greece will remain in Europe, a Europe that is changing, or whether Greece will be forced to leave Europe, losing much and risking much more.”
Greeks are divided on whether the country will be forced to leave the euro, with 47.4 percent saying they don’t think there is a chance compared with 45.2 percent who do, according to a Marc poll published in Ethnos newspaper yesterday. That poll showed 81.5 percent of those surveyed believed Greece’s future lay with the European Union.
Greece’s benchmark ASE Index fell 3.4 percent to finish at 536.49 in Athens, its lowest close since 1990. European stocks dropped for a fourth day, with the Stoxx Europe 600 Index slipping 1.1 percent to 241.63.
The euro was little changed at $1.2694 at 5:32 p.m. New York time after touching $1.2667, the weakest level since Jan. 17.
National Bank of Greece SA tumbled 4.1 percent yesterday, extending a 13 percent slide a day earlier after the country’s central bank chief said citizens had withdrawn as much as 700 million euros ($891 million) from Greek banks.
May 6 Election
The May 6 election left New Democracy and Pasok, the two parties that supported the international rescue as part of an interim government this year, two deputies short of the 151 seats needed for a majority in Parliament. New Democracy came first in the election, though fell short of an outright majority.
President Karolos Papoulias failed in a bid to broker a governing coalition in meetings May 15 with party leaders in Athens.
Tsipras has demanded the caretaker government freeze the implementation of wage and pension cuts and other austerity measures until the elections are held and a new government is formed.
Syriza would win with 22 percent of the vote, according to a poll by Pulse, published in Pontiki newspaper. New Democracy would finish second with 19.5 percent and socialist Pasok party would get 14 percent of the vote.
In contrast, a Marc poll for Alpha TV showed New Democracy with 23.1 percent while Syriza had 21 percent, according to the survey of 1,027 Greeks. The Pasok party garnered 13.2 percent, according to the poll. On the basis of those figures, Pasok and New Democracy would hold a majority in the 300-seat parliament.
“Syriza’s hardline during the talks on a formation of a coalition government may have backfired,” said Wolfango Piccoli, an analyst at Eurasia Group in London. “Fear is likely to be the factor behind ND’s rise as voters are getting increasingly anxious about their pensions and salaries. However, it is too early to say whether Syriza has lost the momentum or not.”