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Moody’s downgrades Greece lower than …Egypt

Another brick in Greece’s wall and in the heads of our government in general, and Finance Minister’s in particular. Rating Agency Moody’s downgraded Greece and placed it below … Egypt! Reuters just reported that Moody’s slashed Greece’s credit rating by three notches on Monday due to an increased default risk, raising the specter that the distressed euro zone sovereign may have to restructure its debt, perhaps before 2013. The move increased pressure on euro zone leaders to ease repayment terms on bailout loans to Athens, just as Germany and its allies seem to have turned their backs on more radical steps to help it reduce its debt through bond purchases or buy-backs.

Moody’s Investors Service downgraded Greek debt to B1 from Ba1 — lower than Egypt — and said it may cut further, drawing an indignant protest from the Greek Finance Ministry.

“The likelihood of a default or distressed exchange has risen since its last downgrade of the Greek government debt rating in June 2010,” Moody’s said in a statement.

The downgrade sent a ripple of anxiety around credit markets, raising the price of insuring Greek, Portuguese and Spanish debt against default and the risk premium on holding Greek bonds rather than benchmark German bunds.

Portuguese government bond yields hit a euro lifetime high of 7.65 percent, heightening pressure on Lisbon to seek an EU/IMF bailout in the wake of Greece and Ireland.

Ahead of a euro zone summit on Friday, European Monetary Affairs Commissioner Olli Rehn made the case for reducing interest rates paid by Athens and Dublin on euro zone rescue loans and extending the maturities to enable them to achieve debt sustainability.

Moody’s cited risks to Greece’s fiscal consolidation program from a revenue shortfall and difficulties in reforming healthcare and state-owned companies.

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