Fitch Ratings Tuesday lowered the outlook on Greece's foreign and local currency Issuer Default ratings (IDR) to negative from stable, but affirmed the rating at 'A'. The firm also confirmed the short-term foreign currency at 'F1' and the Country Ceiling at 'AAA'.

Fitch said the negative outlook reflected further deterioration in the country's fiscal consolidation. Ever since it gained Euro membership in 2001, Greece showed very little capacity for sustained fiscal consolidation, with the general government deficit going below the Maastricht limit of 3% of GDP only once in the past decade, in 2006. In 2008, according to Fitch's estimates, the general government deficit was 5% of GDP, twice the estimate of the government.

Fitch moreover forecasts the country's general government deficit to rise to 6% of GDP and the public debt to increase to 106% of GDP this year, significantly higher than official projections.

On the other hand, Fitch noted that the euro area membership would be the key support for Greece's ratings, as it eliminated balance of payments and exchange rate risks, gives the government access to a much wider investment pool and significantly reduced debt service costs.

Meanwhile, the firm forecasts Greece's economy to contract 2% this year, even after showing long periods of strong growth by euro standards.

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