Standard & Poor’s cut Greece’s credit rating deeper into junk territory on Monday, saying the country is likely to default on its massive debts at least once by 2013 — a decision Athens said ignored its efforts to secure continued funding in coming years.
The rating agency said the downgrade from “B” to “CCC” “reflects our view that there is a significantly higher likelihood of one or more defaults” as the country tries to close yawning financing gaps during the next two years.
It said the outlook is negative.
NEW AUSTERITY
The new cut came days after Greece’s government unveiled a new austerity program aiming to save about 28 billion euros (US$41 billion) in new taxes and spending cuts by 2015, in tandem with an ambitious privatization drive intended to raise about 50 billion euros.
The twin package comes a year after unpopular pension and salary cuts mixed with higher taxes and retirement ages — despite previous pledges to avoid more blanket pain for less affluent Greeks. It will be debated in the Greek Parliament later this week and is set for ratification by early next month.
The planned new austerity has angered opposition parties, which rejected government overtures aimed to secure some degree of consensus, and drove labor unions to call a general strike today.
Parliamentary approval of the combined cutbacks and privatizations is a precondition to secure the fifth installment of a vital 110 billion euro bailout package agreed on in May last year with the EU and the IMF.
“The downgrade reflects our view that implementation risks associated with the EU/IMF program are rising, given the -increasingly complicated political environment in Greece coupled with its current difficult economic climate,” Standard and Poor’s said.
The agency said that delaying Greece’s debt repayments — a move proposed by Germany to get private investors to take on some of the bailout burden and give the country more time to reform its economy — would be considered a default.
The European Central Bank is against Germany’s proposed debt extension, saying that a default by a eurozone country could have devastating consequences on Europe’s broader financial sector.
EMERGENCY MEETING
Finance ministers from the 17 euro nations were to gather for an emergency meeting yesterday to discuss how to help Greece and how to reconcile Germany’s requests with those of the central bank.
All three major international ratings agencies have placed Greek government bonds deep in junk — or non-investor-grade — status.
The Greek Ministry of Finance said Monday’s downgrade took no account of efforts by the country’s creditors to plug the funding gap.
“It overlooks the intense negotiations within the European Commission, the European Central Bank and the International Monetary Fund to find a viable solution that will allow our country’s continued financing and the coverage of its borrowing needs in coming years,” a ministry statement said.
“In any case, [the government] remains set on its course to save the country,” it said.
Peaceful protesters have demonstrated in Athens’ central Syntagma Square, opposite Parliament, for nearly three weeks, with more than 10,000 gathering on Sunday.
Hundreds gathered in the square on Monday night chanting slogans, while protest organizers have called for a blockade of Parliament during today’s general strike, which will be accompanied by demonstrations in the city center.
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