UPDATE 1-Fitch warns euro zone of downgrades if Greeks exit

LONDON Fri May 11, 2012 10:10am EDT

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LONDON May 11 (Reuters) - Credit rating agency Fitch put the whole of the euro zone on notice on Friday that were Greece to leave the currency bloc as a result of its current crisis, the remaining countries could find their sovereign ratings at risk.

It said it was likely to put all euro area ratings on negative watch if Greece were to leave and that those countries which currently have a negative outlook on their ratings would be at most immediate risk of a downgrade.

It said those countries were France, Italy, Spain, Cyprus Ireland, Portugal, Slovenia and Belgium.

"In the event of Greece leaving (the euro), either as a result of the current political crisis or at a later date as the economy fails to stabilise, Fitch would likely place the sovereign ratings of all the remaining euro area member states on Rating Watch Negative as it re-assessed the systemic and country-specific implications of a Greek exit," Fitch said in a statement.

The agency, whose decisions along with those of Moody's and Standard & Poor's help set the cost of borrowing by governments, said the extent of any downgrades would depend on how the euro zone reacted to Greece leaving.

"The probability and magnitude ... would largely depend on the European policy response and its success in limiting contagion, as well as outlining a credible vision of a reformed (euro zone)," it said.

"Nonetheless, the sovereign ratings of all euro zone member states would potentially be at risk," Fitch said.

The leaders of Greece's once-dominant political parties were making a last push on Friday to avert a new election, which a poll showed would give victory to a radical leftist and doom an EU bailout - its second - agreed in March.

The majority of Greeks want to stay in the euro zone but voted last Sunday for parties that reject the severe terms of a bailout negotiated with foreign lenders.

European leaders say Greece will be ejected from the common currency if it turns its back on the package of tax hikes and wage cuts.

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