Greece implemented tough and unpopular austerity measures in order to gain a joint EU/IMF bailout last year [EPA]

Greece has had its credit rating dropped by three notches, sparking strong condemnation from the debt-hit nation.

Moody's Investor Services downgraded its rating to B1 from Ba1 on Monday, and warned it may cut the rating again if the government's commitment to austerity fades.

Greece was saved from bankruptcy last May after accepting a $154bn bailout from the European Union and International Monetary Fund (IMF), on the condition that Athens imposed strict austerity measures.

Moody's said the Greek government's economic programme may not reduce debt and spark growth, and said there would be more difficult conditions when the bailout package ends in 2013.

"The risk of a post-2013 restructuring might lead the Greek authorities and investors to participate in a voluntary distressed exchange before that time,'' the agency said in a statement.

Monday's downgrade sent a ripple of concern 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.

The Greek goverment swiftly condemned the move, saying the downgrade was "completely unjustified" and "does not reflect an objective and balanced assessment" of the country's economic prospects.

"Ultimately, Moody's downgrading of Greece's debt reveals more about the misaligned incentives and the lack of accountability of credit rating agencies than the genuine state or prospects of the Greek economy,'' the finance ministry said.

It said that credit rating agencies had downgraded struggling countries like Greece heavily in past months in an attempt to make up for failing to predict the financial and debt crises.

"Having completely missed the build-up of risk that led to the global financial crisis in 2008, the rating agencies are now competing with each other to be the first to identify risks that will lead to the next crisis,'' the ministry said.

Greek national debt is still to exceed 150 per cent of GDP this year, while the economy is forecast to contract three per cent in 2011 as a whole.

Credit ratings agencies have been criticised in recent years for having presented a too-rosy view of the global economy in the run-up to the financial crisis, which led to the deepest recession since World War II.

Source: Agencies