Moody’s defends decision to again downgrade Greek bonds

A top Moody's analyst on Tuesday defended the international ratings agency's decision, a day earlier, to downgrade Greek government bonds by an eyebrow-raising four notches, Ba1 from A3.

Asked to justify the downgrade when its own report stated that the possibility of a Greek default is less likely, Sarah Carlson, Moody’s lead sovereign analyst for Greece, said:

"Ratings are moved when we think that a country's creditworthiness changes. The probability of default associated with a Ba1 rating is low (historically it has been around 7 percent over a five-year time horizon).

The decision was thoroughly criticised by top EU officials, including Commissioner Olli Rehn, as well as lambasted by the Greek government.

Queried on whether the downgrade merely rekindles the "spectre" of a possible sovereign debt default, Carlson said:

"The downgrade is perhaps a reminder that Greece has a significant economic recovery and debt challenge ahead of it, beyond the scope of the IMF/EU programme. I don't think it brings back the spectre because we say clearly that the risk of default is quite low."

In defending the agency's controversial decision to announce the downgrade now instead of waiting for a Troika (IMF, Commission, ECB) report in July on Greece's fulfilment of criteria envisioned in the eurozone-IMF bailout package, she said Moody's announced it would "change the rating once new policy measures had been announced and we had fully evaluated their impact on both growth and the fiscal position.

"We even said approximately when the downgrade would occur. Finally, we also indicated that any downgrade was likely to be multi-notch and might take the rating to sub-investment grade territory," Carlson concluded.