The top credit rating agencies piled more pressure on Greece on Friday, as the country scrambles to negotiate a new debt deal with its European creditors.
Expressing concerns that Athens can win an agreement to lighten its debt burden and avoid a new default on hundreds of billions of euros’ worth of loans, Standard and Poor’s (S&P) dealt the country a fresh downgrade, while Moody’s put it on review for the same.
“The liquidity constraints weighing on Greece’s banks and its economy have narrowed the timeframe during which the new government can reach an agreement on a financing program,” S&P said.
Photo: Reuters
“A prolongation of talks with official creditors could also lead to further pressure on financial stability,” it warned, with the “worst-case scenario” leading to the country’s exclusion from the eurozone.
Moody’s cited “considerable uncertainty” over the ability of Greece and its EU bailout lenders to reach an agreement that would strengthen the country’s financial position.
“If the Greek government is unable to secure an agreement with official creditors in the next few weeks, the probability of default on debt issued to the private sector would rise sharply,” it warned.
S&P reduced Greece’s credit grade by one step to “B-,” deep in junk-bond territory, and Moody’s put the country on warning that it could cut its slightly lower “Caa1” rating on Greek government debt.
Greece and its key creditors in Europe appeared still far apart over Athens’ demands to renegotiate its 240 billion euro (US$271 billion) bailout with the EU and the IMF.
The EU portion of the program is due to expire on Feb. 28, leaving just weeks for Athens and Brussels to reach a compromise or risk a default that could send Greece crashing out of the euro.
While the EU has offered an extension of its expiring program to help make time for negotiations, Greece was demanding a temporary bridge loan to cover the talks.
“We don’t do bridging loans,” Jeroen Dijsselbloem, the head of the eurozone group of finance ministers, told reporters in The Hague, according to Bloomberg.
However, a Greek government source told reporters that the bridge program would be “an official expression of the will of all sides to negotiate without pressure and blackmail.” Both rating agencies pinpointed the vulnerability of Greek banks to the drying up of their liquidity line from the European Central Bank (ECB).
The ECB this week cut off one route for Greek banks to access its funding. It said on Wednesday that it would no longer accept Greek government bonds as collateral for loans, because of doubts the country would be able to meet its current obligations under the IMF and EU rescue program.
“We see the uncertainties connected to the provision of liquidity to Greek banks as potentially exacerbating deposit outflows, depressing investment and weakening tax compliance, which are already deteriorating Greece’s economic and fiscal profile,” S&P said.
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