Greece downgraded deeper into junk

@CNNMoney May 17, 2012: 3:20 PM ET
Fitch downgrades Greek government debt and calls country's exit from eurozone 'probable' if pro-austerity coalition doesn't win in June vote.

Fitch downgrades Greek government debt and calls country's exit from eurozone 'probable' if pro-austerity coalition doesn't win in June vote.

NEW YORK (CNNMoney) -- The credit rating on Greece's government debt was downgraded deeper into junk bond territory on Thursday.

Fitch Ratings cited the increased risk that Greece, operating now with a caretaker government, could be forced to leave the eurozone following more elections next month.

An exit from the eurozone would be "probable" if the elections fail to produce a government willing to stand by earlier austerity agreements reached with eurozone leaders, Fitch said.

In turn, the country's departure from the eurozone would "result in widespread default on private sector as well as sovereign euro-denominated obligations," the ratings agency said. (Moody's downgrades Spanish regions)

And all 16 other countries in the eurozone could be dinged.

"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 [the eurozone] is probable in the near term," the agency said.

Fitch said the other nations' economies would be hurt if Greece dropped the common currency, and that a continuation of the euro is a basic tenet of its debt ratings on of all the countries using the euro.

The bailout and debt restructuring for Greece approved by the so-called troika -- the European Union, European Central Bank and International Monetary Fund -- required the Greek parliament to approve an austerity program of cuts in government spending and benefits.

But the austerity plan sparked backlash, and on May 6 Greek voters denied a majority in Parliament to the two-party ruling coalition that had agreed to the bailout deal.

Polls show that an anti-austerity party is poised to be the top vote getter in the next round of voting, although it is not as clear it will be able to form a ruling coalition of its own. A deadlock could leave Greece without a working parliament able to pass the additional cuts required by the troika.

European leaders said Wednesday they want Greece to remain in the eurozone, but that it must move ahead with its agreed upon austerity plan.

The increased risk that Greece might leave the euro has driven many Greeks to withdraw money from the banks this week. The weakened state of the nation's banks prompted the ECB to halt some loans to some of the Greek banks, forcing the banks to turn to more expensive assistance from the National Bank of Greece. To top of page

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