ATHENS – Greece may still be broke, but it’s not in technical default anymore. The ratings agency Standard & Poor’s raised the country’s credit grade to low-speculative on May 2, taking it out of default as expected, after Greece imposed losses of 74 percent on private investors to write down its debt by $134 billion. That means that while investors took a huge hit, the agency nonetheless felt lowering the debt was more important even it has frightened off future investments.
But warnings about the country’s shaky economic condition remain as Greece still has nearly $460 billion in debt and can no longer borrow from the private markets, being dependent on the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) for two bailouts totaling $325 billion, which will take generations to repay.
“While the exchange has, in our view, alleviated near-term funding pressures, Greece’s sovereign debt burden remains high,” S&P cautioned as it raised the credit rating to CCC, with a stable outlook. The rating firm warned that the recession and the May 6 general election were posing risks to fiscal adjustments needed to further cut Greece’s debt. “The ratings could be lowered if we believe that there is a likelihood of a distressed exchange on Greece’s remaining stock of commercial debt,” it said in a statement.
In March, the ratings agency Fitch gave Greece a B-rating, meaning it is still speculative and risky, but also lifting the country a notch above default after Greece completed the so-called Private Sector Investment (PSI) deal that included forcing losses on small bondholders, including those in the Diaspora, who put their savings into trying to help their homeland only to find they were nearly wiped out.
The PSI was concocted by Greece’s interim Prime Minister Lucas Papademos, a former ECB Vice-President, and former Finance Minister Evangelos Venizelos, who had promised not to punish small bondholders and those in the Diaspora who responded to calls to help Greece by investing their savings. Venizelos is now the leader of the PASOK Socialists party and its candidate for Prime Minister against New Democracy Conservative leader Antonis Samaras, who has promised to try to return the lost monies to small bondholders if elected. The improved rating also comes as a result of the government continuing to impose harsh austerity measures on its workers through big pay cuts, tax hikes, slashed pensions, reducing the minimum wage 22-32 percent and promising to fire 150,000 workers over the next three years.
The Greek government is committed to implementing a tough deficit-reduction program, largely based on tax increases, improved tax collection, state asset privatizations and cuts in government spending. But the new government is faced with either raising $15 billion in new revenues during a deep recession of 21.8 percent unemployment and with more than 111,000 businesses closed, or making the equivalent in cuts. S&P said its assigned CCC rating reflects the reduction and the improved maturity of Greece’s sovereign debt, brought about by the distressed debt exchange, while taking into account the significant stress Greece’s economy faces.
(Sources: Kathimerini, Reuters, Wall Street Journal)
See all the latest news from Greece and the world at Greekreporter.com. Contact our newsroom to report an update or send your story, photos and videos. Follow GR on Google News and subscribe here to our daily email!
