Fitch has downgraded Greece further in junk status, down from CCC to CC. It is now just one point above what is deemed to be a certain default.
The ratings agency, which is the second to downgrade the beleaguered economy in two days after S&P dropped its rating to CCC- on Monday, said the decision was based on recent developments between Greece and its creditors.
The breakdown of the negotiations between the Greek government and its creditors has significantly increased the risk that Greece will not be able to honour its debt obligations in the coming months, including bonds held by the private sector.
Its next review date was officially scheduled for 13 November, but Fitch said this “deviation” was warranted by the fact it does not believe Greece will be able to pay back its private donors. It rated a default on government debt held by private donors as “probable”.
Adding to its concerns is the fact that Greek Prime Minister Alexis Tsipras is calling for a “no” vote in the 5 July referendum on a deal from creditors. Although early polls suggest a “yes” vote is the more likely outcome, it views the risk of a “no” as significant.
In our view, a 'No' vote would dramatically increase the risk of a Greek exit from the eurozone. Such an exit would probably be disorderly as the current government is unlikely to co-operate with the European authorities in such an event.