ATHENS – Standard & Poor’s ratings agency has downgraded Greece’s debt outlook to negative, blaming the worsening economy and warned that political challenges could soon force another lessening of the country’s deteriorating credit standing.
With Greece’s sovereign credit rating already at junk-level CCC, S&P said Athens’s lenders are likely to have to adjust their bailout financing terms or put up more money to avoid another downgrade for the country.
“The negative outlook reflects the potential for a downgrade if shortfalls in Greece’s 2012 deficit and arrears targets established under the current EU/International Monetary Fund program are not met by new funding or other relief” from key creditors, S&P said.)
Greece is relying on bailouts from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) and given the delays in closing its budget gap and its contracting economy, S & P’s sent up a red flag. It said Athens will probably be unable to meet the conditions of the current EU/IMF bailout program that would allow it to secure the next tranche of rescue financing, crucial to remaining stable. “We are revising the outlook on the long-term ratings on Greece to negative, reflecting the possibility of a downgrade if Greece fails to secure the next disbursement of the EU/IMF Program,” it said.
S&P projects the Greek economy will contract by 10-11 percent over 2012-2013, more than double the assumption that underlies the EU/IMF bailout program. “In our opinion, the deepening contraction in Greek GDP beyond the EU/IMF program’s assumptions and the related worsening of the fiscal position imply a high likelihood that Greece will require additional financing of as much as 7 billion euros ($8.7 billion)” this year, it said. That estimate could be reduced, however, if program lenders lower their performance targets for deficit reduction or other fiscal burdens, S&P said.
The new Greek coalition government is struggling to make another $14.16 billion in cuts demanded by international lenders, creating anxiety in the markets. Austerity measures insisted upon by the Troika of the European Union-IMF-European Central Bank have worsened the country’s already deep recession, putting nearly 1.1 million people out of work and shrinking the economy by 7 percent. Tax revenues have fallen far short of expectations despite big tax hikes that came along with pay cuts and slashed pensions, leading Greeks to slow their spending.