Blow To Greek Economy As Credit Rating Cut

Greece's stumbling economy has suffered a further blow after the Fitch ratings agency downgraded the country's credit rating to CCC from B-minus.

The agency said it downgraded Greece over fears the country could crash out out of the eurozone, and over its political parties' failure to form a coalition government.

Fitch added that the strong showing for anti-austerity parties in Greece's recent elections reduced the chances of the country keeping the euro.

Not only that, said the agency, if new elections scheduled for June 17 fail to result in a government being elected that is willing to continue with the EU-IMF austerity programme imposed on Greece, the country is likely to leave the eurozone.

In Greece's latest elections, the anti-austerity Syriza party became the second-largest.

A statement from Fitch said in part: "The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union (EMU)."

Before the new elections, a senior judge has been sworn in to lead Greece's caretaker government for a month amid fears uncertainty could spark a run on the country's banks.

Council of State head Panagiotis Pikrammenos, 67, will lead a government that will lack the mandate to make any binding commitments until a new election.

His 16-strong cabinet is being sworn in on Thursday.

And with hundreds of millions of euros withdrawn by Greeks from banks in the wake of the nation's May 6 election, political doubt is also worrying the country's international creditors.

Speaking after a briefing from central bank governor George Provopoulos, President Karolos Papoulias told party leaders around 700m euros (£560m) in deposits had left Greek banks since the day after the election.

According to a transcript of the meeting's minutes, Mr Papoulias said: "The situation in the banks is very difficult.

"Mr Provopoulos told me that of course there is no panic, but there is great fear which could turn into panic."

There were no queues at banks in Athens after the May 6 vote, but Greeks have been gradually withdrawing their savings over the past two years as the country's financial crisis deepened, either sending the money abroad or keeping it in their homes.

A Greek banking official, who spoke on condition of anonymity, said the situation with deposit outflows was "calmer" on Wednesday.

Meanwhile, International Monetary Fund (IMF) chief Christine Lagarde warned of "extremely expensive" consequences if Greece were to leave the eurozone.

European leaders have begun openly to discuss the previously taboo subject after the nation descended into political chaos, with financial markets across the globe increasingly rattled.

Ms Lagarde called on Greek leaders to show their resolve to keep the country in the euro by sticking to its bailout deal with the IMF and European Union, the terms of which have inflicted great suffering on its people.

But she told Dutch television that any Greek departure from the single currency "would be extremely expensive and hard, and not just for Greece".

Dr Laurence Wormald, head of research at risk assessment firm SunGard APT, warned of "immediate shocks across the board" if Greece decided to leave the euro after the next elections.

This included a weakening of the single currency as well as damage to equity markets and banks. Oil prices would also react.

He told Sky News: "It's not often all of these things happen together. The kind of shock we are predicting would be a pretty serious one.

"Down the line the risk of contagion would of course be much worse."

Dr Wormald added: "A complete break-up of the eurozone would clearly be something quite unprecedented".  

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