S&P Downgrades Greek Credit Rating Amid Concerns Over Cash

The pressure on Greece’s new government to conclude a deal with bailout creditors ratcheted up Friday as Standard & Poor’s cut its credit rating on Greece further into junk status and warned over the country’s possible exit from the 19-nation eurozone.

Even though the ratings agency lowered Greece’s long-term rating by one notch to B- and warned over its cash position, the Greek government, barely two weeks in power, is insisting it will not give up on demands to overhaul the country’s bailout agreements and bring an end to years of austerity.

Prime Minister Alexis Tsipras met Friday with the government’s top finance officials, who said the new Greek administration would not renege on its election pledge to renegotiate the bailout deal.

“It is clear that the government will remain committed to the clear mandate it has received from voters and will not accept an extension of the dead-end and catastrophic bailout,” a senior Greek official said. The official asked not to be named, as talks with European officials are ongoing.

Still, since the left-wing Syriza party swept to power in the Jan. 25 election, it has made little progress in getting Greece’s bailout creditors to agree to change course. Finance Minister Yanis Varoufakis undertook a whistle-stop tour of European capitals in an attempt to overhaul the bailout’s terms and conditions, but nothing concrete has yet emerged.

In return for rescue cash from its partners in the eurozone and the International Monetary Fund, successive Greek governments have had to impose a raft of austerity measures that the government argues have stifled the country’s economy. Although the Greek economy has emerged from a brutal six-year recession, the country remains burdened by its debts, which stand at over 170 percent of Greece’s annual GDP.

Varoufakis hopes to make more progress Wednesday at a special meeting of the eurozone’s 19 finance ministers, which was called Friday by Jeroen Dijsselbloem, the head of the so-called Eurogroup, to discuss Greece’s debts.

Varoufakis, who has insisted that Athens does not intend to default on its debts, wants to carve out a new compromise to the mutual benefit of the eurozone and Greece. He has suggested a bridging program between now and the end of May to give room for talks on “a new contract” with the European Central Bank, IMF and the European Union.

Athens is also seeking permission from the ECB to sell more treasury bills instead of receiving final loan installments.

In addition to cutting its rating on Greece, S&P warned of a further downgrade by keeping the country on so-called “CreditWatch negative.” S&P said it aims to “resolve” the CreditWatch status by March 13.

The action “reflects our view that 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 with its official creditors,” S&P said.

The agency also warned that a prolonged stalemate with creditors could lead to deposit withdrawals and “in a worst-case scenario, the imposition of capital controls and a loss of access to lender-of-last-resort financing.” That, it said, could potentially result in Greece’s “exclusion” from the eurozone.

This article appeared in print in the February 9th, 2015 edition of Hamodia.