Greece’s long and short-term sovereign credit ratings have been handed another blow by S&P, following the realisation that last year’s deficit was higher than initially forecast. Reduced from B-/B to CCC+/C respectively, the ratings reflect a negative outlook for both the near and far future, and, “without economic reform or further relief,” S&P expects “Greece’s debts and other financial commitments will be unsustainable.”
The credit ratings reflect a negative outlook for Greece for both the near and far future
The downgrade comes as tensions between Athens and its creditors reach boiling point, with both parties at loggerheads over the exact conditions of the country’s debt repayments. The Syriza-led coalition currently has until May 12 to meet a €750m payment, though it seems unlikely that the government will be able to pay what’s owed by the deadline.
“The downgrade reflects our view that Greece’s solvency hinges increasingly on favorable business, financial, and economic conditions,” according to an S&P statement. “In our view, these conditions have worsened due to the uncertainty stemming from the prolonged negotiations between the almost three-month-old Greek government and its official creditors.”
Ultimately, the fear is that Greece could default on its obligations and force a “Grexit”, meaning the country would leave the eurozone and, according to some sources, inflict serious pains on the economy. “We believe that the economic, social, and political ramifications for Greece of such an unprecedented step would be severe and likely be accompanied by widespread public- and private-sector payment defaults.”
The negative outlook means S&P could lower Greece’s rating within the year in the event that the government and its creditors fail to reach an agreement. Alternatively, the outlook could become stable, assuming that Greece and its creditor countries “agree on a new financial support program with policy conditions that satisfy all parties. Such a scenario could contribute to promoting political stability, tax compliance, and a gradual economic recovery in Greece.”
