Moody’s downgrades ratings of 9 Greek banks; warns of further downgrades

Moody’s downgrades ratings of 9 Greek banks

LONDON — Moody’s Investor Services has downgraded its ratings on nine Greek banks as the country’s debt crisis takes a toll on their finances.

In a note Friday, Moody’s lowered the banks’ deposit, debt and financial strength ratings and said the debt and deposit ratines may be downgraded again — these would come alongside Moody’s ongoing review of the country’s sovereign debt rating.

On Thursday, the agency confirmed that it is awaiting to see details of an EU-IMF rescue package before a possible revision of Greece’s government credit rating, but that a “multi-notch downgrade” remained likely.

The banks downgraded include the National Bank of Greece, Alpha Bank and Emporiki Bank.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

ATHENS, Greece (AP) — Facing a dire choice of additional pain or bankruptcy, Greece on Friday heralded drastic new belt-tightening measures to win vital rescue cash from its European partners and the International Monetary Fund to avoid a disastrous debt default.

Prime Minister George Papandreou said cuts are inevitable if the country is to keep afloat.

“The measures we must take, which are economic measures, are necessary for the protection of our country. For our survival, for our future. So we can stand firmly on our feet,” Papandreou said in Parliament.

Greece, the EU and the IMF are expected to complete talks this weekend over what extra steps Athens must take as part of the rescue, which will provide €45 billion in loans this year and up to a reported €120 billion over three years.

Papandreou is widely expected to detail the cuts on Sunday, the day after a mass protest rally planned by the country’s biggest labor unions to mark May Day. Officials briefed on the negotiations say the measures will include a further slash in civil service pay, as well as state and private sector pensions, and a new hike in indirect taxes, including a 2 percentage point increase in sales tax.

“It is a patriotic duty to undertake this, with whatever political cost, which is tiny faced with the national cost of inaction … and indecision,” Papandreou said.

Once an agreement is in place, Germany — which, as the largest EU contributor, has insisted on strict conditions for releasing the aid — is expected to quickly push the issue through parliament so funds can be approved before Greece faces a May 19 debt payment date.

German Finance Ministry spokesman Michael Offer said Friday Athens was expected to present the austerity plan by Sunday. He said once the plan is distributed, Germany will review it and then consult with eurozone finance ministers in a conference call expected on the same day.

Germany has stressed it needs to review the Greek plan before it can move ahead with legislation deemed necessary to free up the €8.4 ($11.1) billion loan it is pitching in to help bail out Greece.

Signs that the help will soon be approved have calmed markets, which previously pushed Greece’s cost of borrowing to untenably high levels high as EU and German officials showed little urgency in addressing the problem.

On Friday the interest rate gap, or spread, between Greek 10-year bonds and their benchmark German equivalent narrowed to 6.20 percentage points, from a staggering 10 points Wednesday.

Standard & Poor’s ratings agency downgraded Greek bonds to junk status this week, and another agency, Moody’s, warned a “multi-notch downgrade” remains likely.

Citigroup chief economist Willem Buiter said the rescue cash would give Greece breathing space, but an eventual debt restructuring — a lengthening of repayment deadlines and cuts in the capital to be returned — appeared inevitable.

“In my view, sooner or later there will have to be a restructuring of the public debt,” he told a conference in Athens. “It won’t happen here anytime soon now thanks to the three years of financial support that have been added … so the immediacy of the solvency crisis has been kicked over a three-year horizon.”

He said the problems would probably last for a decade.

“In Greece there is two options, pain or default, or what I call a slight combination of the two, pain and restructuring with external support from your European partners and your friends in Washington,” Buiter said.

Papandreou’s government is already implementing a €4.8 billion austerity package that has trimmed civil servants’ income, frozen pensions and hiked taxes which has already drawn the ire of labor unions.

Union leaders who met with Papandreou Thursday to discuss the further measures said new cuts would be harsh.

Ilias Iliopoulos, general secretary of Greece’s public servants’ union who attended the meeting, said he was told more sweeping cuts are expected through 2012, and that EU and IMF negotiators were pressing Athens to further increase consumer taxes, relax rules about layoffs, slash pensions, and extend pay cuts to the private sector.

Apart from Saturday’s Labor Day protests, unions have already called a nationwide general strike on May 5.

Citigroup’s Buiter castigated what he called “dithering and shameful brinkmanship” by Greece’s EU allies, which if repeated, could lead to “a nasty, unintended default.”

“But if we use collective brains we won’t,” he added, and expressed optimism that the 16-member eurozone will weather the storm.

“I don’t think that any of this threatens the eurozone, except possibly the risk of what I call a soft bailout, that conditionality is not enforced and the Germanies of this world after 5 or 10 years of filling a black hole — in Greece and possibly elsewhere as well — will walk out in disgust,” Buiter said. “I don’t think that is going to happen.”

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Associated Press writer Elena Becatoros in Athens contributed.