Moody's downgrades City of Athens debt rating

Moody's rating agency announced a downgrade of the credit rating of the City of Athens to Caa1 from B1 and changed the outlook to negative, following its downgrade of Greece's sovereign rating to Caa1.
Completing the review it commenced on May 10, Moody's said on Thursday that "Greek municipalities, including the city of Athens, are unlikely to have enough financial flexibility to enable their credit quality to be stronger than that of the sovereign itself".

"The strong operational and financial linkages between the city and the sovereign imply significant limitations for the city's administration to act independently from the sovereign and outside of the scope of broader government reforms," Moody's said, adding that "these linkages are illustrated in the recent deterioration in the city's financial performance, which has mirrored the overall deterioration of the sovereign's fiscal position," according to Moody's.

It added that "pre-closing figures for 2010 reveal Athens' difficulty in adjusting expenditure levels to match lower revenue, resulting in a widening cash financing deficit", and noted that, "as the capital city of Greece, Athens plays a key role as the financial, economic and political hub of the country", accounting for almost 50% of national GDP and a total population of 745,000.

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