Moody's lowers Greek rating on fears of euro exit

Moody’s rating agency said it was lowering Greece’s highest possible credit rating because there was an increased risk that the country would exit the euro zone.

Moody’s said it “has lowered its assessment of the highest rating that can be assigned to a domestic debt issuer in Greece to Caa2 based on the increasing risk of a exit by the country from the euro area.”

The highest rating “on any Greek security is currently B1, which is rating assigned to certain covered bonds. Any rating actions taken as a result of the new ceiling will be released during the coming week.”

According to Moody’s, although the risk of Greece’s euro exit “is substantial,” it is still not what the ratings agency considers its most likely scenario.

Greece’s radical leftist party Syriza surprised Europe on May 6 by placing second in an inconclusive election that saw voters fed up with salary and pension cuts shift their loyalties to radical parties.

A series of opinion polls published Friday showed that neither Syriza nor its top rival, the conservative New Democracy party, would win an outright majority in new elections called for June 17 after the deadlock.

The vote will determine whether Greece will meet the terms of a deal under which the European Union and International Monetary Fund agreed to lend it hundreds of billions of euros (dollars) in return for economic reforms.

Following the vote “it is possible that the risk of euro exit will increase further. If that were to occur, the maximum rating Moody’s would assign to Greek securities would fall further,” the company said.

A eurozone exit “would result in large losses to investors due to redenomination of government debt and private debt securities issued under Greek law and lead to severe disruption to the country’s banking system and acute dislocations in the real economy.