Fitch Downgrades Greece

NICHOLAS PAPHITIS

ATHENS, Greece (AP) — Greece scrambled Wednesday to push through a batch of emergency laws that will further cut incomes and state spending, a day after securing a new bailout and debt relief deal designed to stave off bankruptcy.

The new austerity measures demanded by creditors in return for the rescue loans follow two years of deepening misery, with the Greek economy in freefall, unemployment at a record high and the state of the public finances in worse shape than previously forecast. Angry unions have called two separate protest rallies outside Parliament for later on Wednesday.

On Tuesday, the 17-country eurozone approved Greece's second financial lifeline in less than two years, worth €130 billion ($172 billion), and a €107 billion ($141 billion) debt writedown by banks and other private holders of Greek bonds.

In response to the writedown agreement, Fitch downgraded Greece's credit rating further into junk status, from 'CCC' to 'C.'

The agency said a Greek default "is highly likely in the near term" and added that it would briefly consider placing Greece in "restrictive default" once the bond swap is completed — a warning it first issued in June.

Athens argues that the default rating would be a simple technicality, as the twin deals struck on Tuesday will allow the country to repay bonds maturing next month — thus avoiding a disorderly default — and remain in the common European currency it joined in 2001.

Even then, the price of salvation for ordinary Greeks is only just starting to sink in.

Legislation tabled in Parliament late Tuesday outlines a total €3.2 billion ($4.2 billion) in extra budget cuts this year agreed by the Cabinet last week.

The measures include nearly €400 million ($530 million) in cuts to already depleted pensions. Health and education spending will be reduced by more than €170 million ($225 million), subsidies to the state health care system will be cut by €500 million ($661 million), and health care spending on medicine will fall by €570 million ($754 million). And some €400 million ($529 million) will be lopped off defense spending — three quarters of which will come from purchases.