MOODY’S Investors Service downgraded Cyprus’s government bond ratings on Wednesday by two notches to Ba3 from Ba1, and has placed the ratings on review for further possible downgrade.
The credit agency said that the key driver behind its action was “the material increase in the likelihood of a Greek exit from the euro area, and the resulting increase in the likely amount of support that the government may have to extend to Cypriot banks.”
And went on to say that “The two-notch downgrade reflects Moody’s assessment that this risk is exacerbated by the fact that the country’s finances are already strained and access to the international markets is still denied.”
Adding that its decision to maintain Cyprus sovereign bond ratings on review for further downgrade “reflects the need to assess the substantial downside risks to the banking sector and the sovereign as a result of a Greek euro exit.”
The downgrade comes hot on the heels of Moody’s action on Tuesday, when the agency downgraded of the Bank of Cyprus and the Hellenic Bank.
Moody’s latest move is an added blow to Cyprus as it seeks €1.8 billion to recapitalise the Popular Bank and as much as €4 billion in financial aid.
The profligacies of the past are now coming home to roost, but from the current Government we get more limp statements, further vagaries, simply continuing the effects of previous complacency and long-term denial.