Standard & Poor's downgraded Greece's credit rating Monday, saying a default on some debt appears "increasingly likely."
The rating agency cut its long-term rating on Greek government debt to triple-C from B, leaving Europe's weakest state just two notches above default. S&P blamed toxic bailout politics, saying strings appear likely to be attached to the next round of official funding for Greece in an event that would "result in one or more defaults under our criteria."
The comment comes as Greece's deteriorating finances threaten to vault the Continent into a new financial crisis. Greece is running out of money as its economy contracts under pressure from an austerity program started last year as a condition of a previous bailout. The country will need 153 billion euros ($220 billion) between now and 2014 just to roll over maturing debt, S&P said.
But getting another round of funding will be even more painful this time round. Tight-fisted German policymakers want private investors to share in the pain – a notion that seems reasonable enough to everyone but European central bankers, who fear a restructuring of Greek debt will cause a global bank run like the one that followed the 2008 collapse of Lehman Brothers.
As adamant as the European Central Bank has been on that subject, recent comments from German officials suggest "some official creditors will see restructuring of commercial debt as a necessary condition to such additional funding," S&P wrote. Any change that would result in less favorable terms to creditors would be viewed "as a de facto default," the rating agency said.
The markets have begun treating a Greek default as a fait accompli, with the credit default swaps market reflecting a 73% probability that Greece will fall behind on payments within five years. Moody's downgraded Greece last week, putting the odds of default over the next five years at 50-50.
Greece is expected to receive a new infusion of funding from the European Union and the International Monetary Fund next month. The sums in this second round could exceed $100 billion.
But officials haven't agreed to terms, in part because bailout-phobic taxpayers in Germany and other so-called core European countries want to impose conditions that would recoup some costs from existing private sector bondholders.
The Germans' take makes sense – it was the private sector that funded Greece's spending spree, after all – but will do nothing to ease fears that we are headed for a replay of September 2008.
The ECB, which has taken on hundreds of billions of euros of Greek, Portuguese and Irish government debt as it props up those countries' banks, has opposed any debt restructuring or maturity extension on the grounds that doing so could lead to a new funding crisis for Europe's banks.
This dispute has only intensified in recent days, adding to reasons for the downgrade.
"Risks for the implementation of Greece's EU/IMF borrowing program are rising," S&P said, "given Greece's increased financing needs and ongoing internal political disagreements surrounding the policy conditions required by Greece's partners."
S&P said it expects the EU to force Greece to accept debt maturity extensions at next week's meeting of European ministers. But even if Europe punts next week, "the likelihood of such an action over the next year has increased materially," S&P said.
Think the debate about U.S. creditworthiness can't get any sillier? Guess again.
A week after Standard & Poor's finally told us what we already knew, that the U.S. fiscal fiasco is in danger of spinning out of control, along comes Weiss Ratings of Jupiter, Fla., to reaffirm we can't max out our national credit cards forever without paying the price.
Few would disagree on this point. But perhaps aiming to grab a MOREColin Barr - Apr 28, 2011 2:32 PM ET
Sometimes you just have to cut your losses.
So it is with Citi analyst Keith Horowitz. He removed Bank of America (BAC) from his Top Picks Live list Thursday, noting that a 37% rally in the stock over the past six weeks brings it near $15 -- just $3 short of his target price.
Horowitz still rates the stock buy, saying it's the best value among banks, but he stripped its top-pick MOREColin Barr - Jan 13, 2011 11:37 AM ET
In the nothing succeeds like failure department, Moody's is up 7% today on news that it cashed in big time on Wall Street's fourth-quarter bond-peddling boom.
Moody's (MCO) raised its 2010 earnings forecast by 9%, citing "robust fourth quarter bond market issuance benefiting Moody's Investors Service, and accelerated completion of software projects for customers of Moody's Analytics."
With Thursday's rally, both Moody's and McGraw-Hill (MHP), the operator of the rival rating agency MOREColin Barr - Jan 6, 2011 12:18 PM ET
Deftly turning the other cheek, Moody's upgraded China Thursday, just days after China's latest attack on conflicted U.S. debt raters.
Moody's upgraded China's sovereign credit rating by a notch to Aa3, its fourth-highest rating, from A1. The firm cited the country's strong recovery from the global financial meltdown of 2008.
Moody's maintains a positive outlook on China, the world's most populous country and biggest exporter, meaning it may upgrade again in the MOREColin Barr - Nov 11, 2010 10:11 AM ET
The United Kingdom isn't in danger of losing its top credit rating, Moody's said Monday, citing a government belt-tightening pledge.
The rating agency, issuing its annual report on the world's sixth-biggest economy, said the U.K. won't soon return to its precrisis growth rate. It cited softness in the banking sector and the tattered finances of trading partners.
But Moody's said it believes the government's commitment to shoring up its balance sheet should MOREColin Barr - Sep 20, 2010 9:42 AM ET
Put bank regulators at the top of the list of people struggling to figure out how to downgrade the credit rating agencies.
The Federal Deposit Insurance Corp. said Tuesday it will ask the public to comment on proposals for reducing the use of credit ratings in bank capital rules. Under the Dodd-Frank Act that was signed into law last month, the FDIC has a year to change its rules to reduce MOREColin Barr - Aug 10, 2010 2:01 PM ET
This just in: Goldman can afford its big settlement payout.
So says S&P. The rating agency sent subscribers an email Friday with the all-caps header "BULLETIN" over an utterly unremarkable announcement: A planned $550 million settlement payout by Goldman Sachs (GS) "does not immediately affect the ratings."
This comes as a surprise to no one, least of all S&P. It said three months ago when the Securities and Exchange Commission filed its fraud case that it was "unlikely that any monetary payouts MOREColin Barr - Jul 16, 2010 11:45 AM ET
A report from America's biggest foreign creditor is the latest to ding the gold-plated reputation of U.S. Treasury debt.
A Chinese credit rating agency issued a report this weekend saddling the United States with a double-A rating, while warning that slow growth and budget problems could prompt further downgrades here and in other big Western economies.
Dagong Global Credit Rating Co. ranks the United States as riskier than a dozen other nations, including MOREColin Barr - Jul 13, 2010 1:00 PM ET
The United Kingdom will keep its triple-A credit rating for now but remains at risk of a downgrade, Standard & Poor's says.
S&P reaffirmed the U.K.'s gilded rating but kept its outlook negative. Monday's announcement comes after a new government last month proposed budget cuts that one analyst deemed "eye-watering."
S&P said it views the cuts as a "strong framework" for improving the nation's finances. But it suggested the government proposal hinges MOREColin Barr - Jul 12, 2010 12:32 PM ET
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