Fitch Cuts Greece's Debt Rating a Notch

Rating firm Fitch downgraded Greece's credit a notch Thursday, to CCC from B-, citing political uncertainty over the country's commitment to a crucial bailout and possible exit of the eurozone.

"The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union (EMU)," Fitch Ratings said in a statement.

Fitch said that a strong showing by Greek "anti-austerity" parties in May 6 parliamentary elections and the subsequent failure to form a government "underscores the lack of public and political support for the EU-IMF 173-billion-euro ($220 billion) program."

A caretaker government of technocrats took office in Athens Thursday to prepare fresh elections slated June 17 amid rising popularity of political parties that oppose the bailout and its tough austerity measures.

Fitch warned that if a new government did not support the bailout, it was likely Greece would leave the single-currency bloc and default on its debt, potentially hurting the credit ratings of other eurozone member countries.

"In the event that the new general elections scheduled for 17 June fail to produce a government with a mandate to continue with the EU-IMF program of fiscal austerity and structural reform, an exit of Greece from EMU would be probable," it said.

"A Greek exit would likely result in widespread default on private-sector as well as sovereign euro-denominated obligations, despite a moderate sovereign debt service burden following the restructuring of Greek government bonds in March."

Fitch also lowered Greece's so-called "country ceiling" rating, which reflects the risk of capital and exchange controls being imposed by to stop or hinder capital flight.

Breaking with its AAA rating for the 17-nation eurozone, Fitch cut Greece's country-ceiling rating to B-.

That action effectively imposes a cap on the ratings of all issuers and transactions domiciled in Greece, the company said.

"In the event of a Greek exit from EMU, Fitch would treat the forcible re-denomination of sovereign and private-sector debt into a new Greek currency as a default event," Fitch said.

"A Greek exit from the eurozone "would break a fundamental tenet underpinning Fitch's sovereign and other ratings in the eurozone as well as exacerbating economic and financial risks" facing other eurozone members.

"Consequently, Fitch would place all eurozone sovereign ratings on Rating Watch Negative following the Greek elections if Fitch assesses that the risk of a Greek exit from EMU is probable in the near term."

The International Monetary Fund on Thursday said its planned review mission to Greece for the disbursement of its next loan installment was on hold until after the June 17 elections.