Fitch cuts outlook to negative

Ratings agency Fitch cut its rating on Greece’s outlook to negative from stable yesterday over concerns as to whether the government will be able to manage fiscal spending in difficult economic conditions. The A rating on Greece’s local and currency debt, the sixth highest, was affirmed. The country ceiling was affirmed at AAA, reflecting Greek membership in the eurozone. Fitch pointed out that fiscal deterioration had taken place in recent years during strong economic growth, raising long-term concerns about fiscal consolidation and public debt sustainability in a more difficult global economic environment. «The authorities consistently overestimate revenues while slippages in expenditures reflect weak controls and a lack of political will,» Chris Pryce, a director on Fitch’s sovereign team, said in a statement. Fitch’s outlook cut is the second outlook downgrade by a rating agency this year for Greece, the eurozone’s most heavily indebted member as a percentage of GDP after Italy. The conservative government, with a slim majority in Parliament, has been slow in implementing painful economic reforms in the face of a series of scandals as well as last December’s street riots. «Fitch is skeptical of the authorities’ ability to manage public finances in a more difficult global economic environment and forecasts that the deficit and public debt will rise to 6 percent and 106 percent, respectively, of GDP in 2009, significantly above official projections,» Pryce added. The move follows downgrades by rating agencies this year for other eurozone members Ireland, Spain and Portugal. Spreads of Greek government bonds over benchmark German Bunds rose to 180 basis points from 176 after the outlook change. Bond analysts said they were not surprised by news of the outlook cut but added that any threat to a country’s single A rating would be a more serious threat to the entire eurozone.

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