Standard & Poor’s (S&P) on Wednesday downgraded Greece’s credit rating one notch further into junk territory, saying it is likely to default on its commercial debt within a year if it cannot strike a deal with its creditors.
Greece has shown it is giving higher priority to its pensions and other domestic spending than making debt payments on time, the ratings agency said.
Athens has delayed making a debt payment to the IMF due on Friday last week and must pay the global lender 1.6 billion euros (US$1.8 billion) by the end of this month.
S&P lowered Greece’s rating to “CCC” from “CCC+” with a “negative” outlook.
The move reflects “our opinion that in the absence of an agreement between Greece and its official creditors, the Greek government will likely default on its commercial debt within the next 12 months,” Fitch said in its report.
The downgrade comes as Greek leaders are locked in negotiations with European officials over the terms of a fresh US$8.1 billion rescue loan to help it make payments to the IMF and European creditors.
However, European leaders on Wednesday said that Greece needs to promise greater economic reforms in return for the funds. They are demanding steep cuts to Greece’s pensions, as well as higher sales taxes and larger budget surpluses.
Greek Prime Minister Alexis Tsipras has said he would make some concessions, but would not impose further pension cuts.
S&P said that money is flowing out of Greece’s banks, which are dependent on the European Central Bank for financial support.
Those outflows could ultimately force Athens to block that money from leaving the country, it said, precipitating an exit from the eurozone.
In addition, any agreement between Greece and its creditors in the next two weeks would likely only provide temporary relief, covering payments for the next three months, S&P said.
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