Agency Cuts Greece’s Debt Rating Again

The downgrade comes at a particularly awkward time for Greece. The government is attempting to persuade legislators to accept a fresh set of austerity measures. At the same time, Germany, the dominant economy in the 17-member euro zone, is proposing that private sector bond holders accept some form of a loss on their Greek bonds as a condition for a broader rescue package for Greece that could approach 100 billion euros.

While one more downgrade for Greece is unlikely to change matters much, it does put some more pressure on the Germans who have been facing pressure from the European Central Bank to not restructure Greek debt.

In its press release, SP said that its downgrade reflected the reality that any form of debt exchange — whereby bondholders would trade their shorter-term debt for longer-dated paper — would be seen as harmful to creditors and thus, in the eyes of SP, would be equal to a default. SP said if that it occurred, Greece’s rating would reach the level of D.

The ratings agency also mentioned the continuing depths of the Greek economic slump, pointing out that unemployment rate was now at 16.2 percent. Greece has financing needs of close to 160 billion euros through 2014. Given these steep requirements and the difficulties the government is having in pushing through its austerity package, SP concluded that some form of restructuring is now more likely than not.

Article source: http://feeds.nytimes.com/click.phdo?i=85733ecfd63fac3747b528785db7f07c