Moody's puts Greece on review for downgrade due to accounting fraud and political violence

Greece has been placed on review by Moody's for a possible downgrade by Moody's.  I don't think it a coincidence that this is happening at the same time that there is violent unrest as communist unions take on the government.  There is considerable support for the communist parties of Greece. 

The KKE is the most active and according to wikipedia it is a political force rallying a significant amount of support within the organized working-class movement.

Moody's has seen how much more difficult it will be to enact real change in Greece vs Ireland. 

Via Moody's:

Moody's Investors Service has today placed Greece's Ba1 local and foreign currency government bond ratings on review for possible downgrade. Greece's country ceilings for bonds and bank deposits are unaffected by the review and remain at Aaa (in line with the Eurozone's rating).

Moody's decision to initiate this review was prompted, despite significant progress in implementing a very large fiscal consolidation effort, by the increased uncertainty over (1) Greece's ability to reduce its debt to sustainable levels given the recent substantial upward revision in debt levels; (2) the substantial revenue shortfall that we have observed in 2010; and (3) the level and conditions of ongoing support that would be available to Greece in the event that its market access remains cut off. Therefore, Moody's review will focus on the factors, namely nominal growth and fiscal consolidation, that will drive the country's debt dynamics over the next few years. It will also consider implementation risk, which appears to be particularly high in 2011 for both political and administrative reasons.

Moody's says that a multi-notch downgrade would be possible if it concludes that there is an increased risk that Greece's debt-to-GDP ratio will fail to stabilize in the next three to five years, or that there is a greater risk that EU support will turn out to be less strong after 2013 than the rating agency had previously assumed.

"Greece has made significant progress in implementing a very large fiscal consolidation effort. However, the challenge of reducing debt to sustainable levels has also become greater due to both domestic and regional developments," says Sarah Carlson, Vice President-Senior Analyst at Moody's Investors Service and lead sovereign analyst for Greece.

These developments include:

1.) Substantial upward revision in debt levels: Greek debt was already at a high level before Eurostat's recent revision of Greece's 2009 debt statistics to 126.8% of GDP. This 11.7 percentage point revision is almost twice the level that Moody's had anticipated and amplifies the risks stemming from the country's uncertain growth and interest rate outlook over the coming years.

2.) Weak revenue growth: Greece has fallen well short of its revenue growth targets in 2009, a factor that contributed to the upward revision in its deficit projections for 2010. Although there are signs that VAT collections are improving in spite of the weak macroeconomic climate, the vigorous implementation of reforms to fight tax evasion will be critical to a sustainable improvement in public finances.

3.) Uncertainty surrounding ongoing support: The level and conditions of ongoing support on offer to Greece is no longer certain. The IMF and European authorities have expressed very strong support for Greece, as long as Greece follows through with its economic programme. However, the authorities' willingness and ability to provide Greece with additional assistance is not assured and particularly depends on programme implementation. Moreover, the precise nature and conditions of support that will be forthcoming after 2013 -- and the implications that this will have for bondholders -- is unclear.

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