Greece's debt sank to a new low this week with another downgrade from Moody's; with the move from a grade of Ba1 to B1, the country's ability to pay off loans is now estimated as below even Egypt's. The cut caused the country's bonds to fall as well, sparking anger from Greece's finance ministry. With Moody's predicting a further downgrade more likely than an upgrade at this point, the European Union's bailout capacity has come into question. "If a country fails to demonstrate that it can ever hope to repay its debts, it may be required by its European partners to impose losses on its creditors," the BBC reports.
And how will the market react to this downgrade? Matt Phillips at the Wall Street Journal's Market Beat blog seems to suggest another downgrade for Greece is just not a big deal to the market, perhaps a sign that all the talk of cascading defaults across Europe has grown wearisome to traders. "The euro is holding above $1.40, shaking off Moody's decision to downgrade Greek debt yet again," writes Phillips. "Plainly stated, the market does not seem to care too much."
Douglas McIntyre at 24/7 Wall Street notes that while Moody's typically adjusts debt ratings by a single level, Greece's rating took a three-tier kick. Still, McIntyre wonders if Moody's should have actually cut Greece's rating even further, noting that the agency did not take into account Greece's dependency on imported oil as well as the country's domestic turmoil, focusing instead on taxes and ambitious austerity plans. "Gas prices and civil unrest have quickly replaced worries about austerity plans and tax collection as the troubles that will scuttle the new debt structures of weak countries," McIntyre clarifies. "Austerity can be managed at least to some extent. The price of crude cannot."