Fitch downgrades Greece on debt swap deal

Greek unions have staged fresh protests as the country’s parliament debates emergency legislation to implement a eurozone bailout deal and Fitch ratings says the country is close to default.

Greece, bolstered by a hard-won 237bn euros ($310bn) rescue package on Tuesday, suffered a fresh setback when international ratings agency Fitch said a Greek debt default was “highly likely in the near term” despite the latest aid.

Wednesday’s warning came as Fitch cut Greece’s sovereign debt rating by two notches, from “CCC” to “C”, leaving it just one grade above formal default.

Al Jazeera’s Tim Friend, reporting from the capital Athens, said “there is still a lot of uncertainty in the air”.

Greece, mired in recession for five years and with unemployment above 20 per cent and rising, also had to revise up its public deficit targets.

Deficit forecast raised

In a draft law on additional austerity measures to secure the massive public- and private-sector bailout, the government raised its 2012 deficit forecast to 6.7 per cent of Gross Domestic Product (GDP) from 5.4 per cent.

Against this backdrop, around 5,700 demonstrators marched in the rain after calls by leftist unions and a communist group for protests against the bailout deal, police said.

Thirty people were detained for questioning and two were arrested. Around 2,000 people demonstrated in Greece’s second city Thessaloniki, according to police.

“There was a reasonable turnout but the weather was against them,” our correspondent said.

The two main unions, GSEE and Adedy, had called the protests over new salary and pension cuts required under the latest bailout package.

Tuesday’s deal provides Greece with 130bn euros ($170bn) to 2014 alongside a 53.5 per cent writedown of privately held Greek sovereign debt which should cut 107bn euros ($142bn) from the country’s debt mountain of 350bn euros ($462bn).

Deadlines loom

Lucas Papademos, Greece’s prime minister, said the reforms would restore growth to the economy while Finance Minister Evangelos Venizelos pressed parliament to pass the enabling legislation as tight debt deadlines loomed.

Venizelos said an official offer to private creditors had to be made by Friday so that a debt swap could be concluded by March 12 for those bonds governed by Greek law.

“We must have legislation in place by Friday morning,” Venizelos said, warning that otherwise, “Greece will face a problem with its reserves on March 14” when it must repay debt of nearly 14.5bn euros ($19.2bn).

“If we do not apply this legislation, any speculator can stay out of the procedure, expecting to be paid in full,” the minister said, referring to holders of the bonds opposed to the writedown and swap.

“It takes a week to disburse the money. So it must begin by March 14, otherwise we will not make it,” a finance ministry source told the AFP news agency.

The latest austerity measures include a 22 per cent cut in the minimum wage, while pensions of more than 1,300 euros ($1,722) a month will be slashed by 12 per cent, further adding to the economic hardship of ordinary Greeks.

The new measures must be approved before elections expected in April which pollsters say could fail to produce a clear majority, clouding prospects for implementation of the debt accord.

Parliament debated on Wednesday reforms to the healthcare system aimed at additional cost cuts of up to 1bn euros ($1.3bn) in 2012 by merging hospitals.

Politicians should also vote by the end of the week on legislation needed to implement the bailout deal, including the private creditor debt writedown, a Greek finance ministry source told AFP.

The government hopes that 66 per cent of private creditors will sign up to the bond swap deal, allowing Athens to impose a Collective Action Clause (CAC) to force hold-outs to accept the swap and losses as well.

Greece has until the end of February to approve more than three billion euros ($3.9bn) in additional spending cuts and amend the constitution to ensure that debt repayments take priority over other government commitments.