Another downgrade for Greece – S&P cuts to BBB+

Posted by Stacy-Marie Ishmael on Dec 16 17:49.
On the same day the finance minister of the Hellenic Republic told the FT he would do “what it takes” to regain investors’ trust, Standard & Poor’s lowered the country’s ratings to BBB+ from A-.
The rating agency kept a CreditWatch negative on the sovereign – meaning further downgrades in the near future were likely.
From the statement:
The downgrade reflects our opinion that the measures the Greek authorities have recently announced to reduce the high fiscal deficit are unlikely, on their own, to lead to a sustainable reduction in the public debt burden…Moreover, we believe that the government’s efforts to reform the public finances face domestic obstacles that would likely require sustained efforts over a number of years to overcome
…Due to upward revisions to our projections of Greece’s general government debt and deficit levels, and the anticipated cost to the government of servicing these obligations, we see Greece’s fiscal flexibility diminishing more than we had previously expected. We expect double-digit general government deficits as a percentage of GDP this year and next to raise Greece’s government debt burden sharply, to 126% of GDP in 2010 and around 138% of GDP in 2012. In our view, the increasing debt-service burden narrows the scope for debt stabilization, particularly against the background of what we expect will be a significantly weaker near-term economic growth environment.
The CreditWatch placement reflects our view that the ratings could be further lowered if the government is unable to gain sufficient political support to implement a credible medium-term fiscal consolidation program. We expect to resolve the CreditWatch placement within the next three to four months, during which time we anticipate the government will provide more detail on its budgetary consolidation strategy, including implementation plans. If political considerations and social pressures hamper progress in establishing a framework for containing the debt burden, we could lower the ratings further. On the other hand, if over the next three to four months Greece successfully implements a plan that includes deficit-reducing measures or other economic reforms that could lead to a sustained improvement in the debt trajectory, the ratings could be affirmed.
Gary Jenkins at Evolution Securities provided some snap commentary:
Downgraded by S&P to BBB+. They put it on watch on 7th December and said the watchlisting would be resolved within 60 days, well clearly it couldnt have beena very difficult decision because it only took them 9 days! ECBs temporary change of rules means that until the end of 2010 BBB- is the lower limit for acceptable collateral rather than the normal A-. No doubt the speed of the rating agencies decision as well as the fact that the rating remains on watch for further downgrade will cause even more volatility for Greece’s sovereign debt…The continued watchlisting is very bad news as it will create further uncertainty regarding how low the rating can go….

Related links:Fitch downgrades Greece to BBB+ – FT Alphaville
Making an example out of Greece – FT Alphaville
To loud applause – FT AlphavilleGreece is the word – FT Alphaville