January 27, 2023

S.&P. Cuts Rating on Greek Debt, Shaking Confidence

The ratings agency’s forecast that Greece faces a de facto debt restructuring put European policy makers in a familiar position: forced onto the defensive by a relentless flow of negative news and market reaction that far outpaced the speed of government decision-making.

The S. P. downgrade, reducing Greece to the same creditworthiness as Belarus, followed several days of speculation ignited by a report on Friday by Spiegel Online that finance ministers from Europe’s largest countries were holding a secret meeting in Luxembourg at which they planned to discuss whether Greece should leave the euro zone.

E.U. leaders angrily denounced suggestions that they were considering such an apocalyptic situation, and it was unclear whether the meeting in Luxembourg was secret — or simply so routine that no one had bothered to mention it to the news media. Even Spiegel’s article portrayed a Greek exit from the euro zone as unlikely.

That was almost beside the point, though, as the reports awoke fears that Greece remained on a path to fiscal disaster and that European leaders did not have a convincing plan to prevent the country from defaulting.

The euro fell almost a cent against the dollar on Monday, to below $1.43, and major European stock market indexes were also down.

Analysts and investors said they did not see how Greece could get its debt under control when output was slumping, and there was little sign that efforts to restructure the economy were bearing fruit.

“Austerity is fine, but what you really need is investment and growth and we just don’t see that,” said Jonathan Lemco, a sovereign credit analyst at Vanguard, the mutual fund giant. “This is a deep junk credit.”

The idea of Greece spinning off from the euro area is “plainly ridiculous,” Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., said in a note.

But he said that Greece needed a new plan to cope with its debt because the old one was not working.

“Greece faces an imminent default and subsequent involuntary restructuring of its debt because the government has failed to perform as required under its fiscal and economic adjustment plan,” Mr. Weinberg wrote.

Greek officials acknowledge in private that they may miss coming fiscal targets set by the International Monetary fund because of a deeper-than-expected economic slump. In 2013, Greece will be required to raise as much as 30 billion euros, or $43 billion, from the debt markets.

“Next year will be the crunch point, and one cannot assume there will be more public money coming without private sector participation,” said Thomas Mayer, an economist at Deutsche Bank.

In a statement on Monday, S. P. noted increasing sentiment among governments in favor of giving Greece more time to repay 80 billion euros in loans from the European Commission. But the commission would probably insist that private bondholders also accept slower repayment, S. P. said.

“As part of such an extension, we believe the euro zone creditor governments would likely seek ‘comparability of treatment’ from commercial creditors in the form of their similarly extending bond and loan maturities,” S. P. said in a statement.

Even if creditors eventually get all of their money back, S. P. said, “such an extension of maturities is generally viewed to be less favorable to commercial creditors than repayment according to the original terms of the debt.”

The Greek government accused S. P. of responding to market and news media speculation. “There have been no new negative developments or decisions since the last rating action by the agency just over a month ago,” the Ministry of Finance said in a statement. The downgrade “therefore is not justified.”

Moody’s Investors Service said on Monday that it too might cut its Greek rating further, possibly by more than one notch, Reuters reported.

Amid the nervousness about Greece, Ireland also seemed to be angling for easier terms on its bailout.

“We carry a heavy burden of debt,” Prime Minister Enda Kenny told the Irish Parliament on Monday, according to Reuters. “Without strong growth, questions of sustainability will remain.”

European political leaders as well as the European Central Bank rule out any kind of restructuring of Greek debt, saying it would undermine confidence in other countries like Portugal and Ireland and potentially create panic in financial markets.

In Berlin, a government spokesman said that European leaders wanted to wait until examiners from the International Monetary Fund, the E.C.B. and the European Commission issued a report in June on Greece’s compliance with an austerity and economic restructuring program.

Greece will be on the agenda when Chancellor Angela Merkel of Germany meets José Manuel Barroso, the president of the European Commission, on Wednesday, and Herman Van Rompuy, president of the European Council, on Thursday. But a spokesman for Mrs. Merkel, Rüdiger Petz, said that was just one of several topics to be discussed, and he played down the importance of the meeting for Greece.

Landon Thomas Jr. contributed reporting from London and Stephen Castle from Brussels.

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Another Downgrade by S.&P. Adds to Unease Over Greece

Standard Poor’s downgraded Greece’s debt once again, and Moody’s Investors Service put its rating on review for downgrade, compounding pressure on the government as it seeks to come up with a solution shy of a debt restructuring, including privatizing state enterprises, though there is resistance to that step.

Analysts and investors said they did not see how Greece could get its debt under control when output is slumping and there is little sign that efforts to restructure the economy are bearing fruit.

“Austerity is fine, but what you really need is investment and growth, and we just don’t see that,” said Jonathan Lemco, a sovereign credit analyst at Vanguard, the mutual fund company.

S. P. lowered its rating to B from BB –, reducing Greece to the same creditworthiness as Belarus, the lowest-rated countries in Europe. In a statement, S. P. noted increasing sentiment among governments in favor of giving Greece more time to repay 80 billion euros ($115 billion) in loans from the European Commission. But the commission would probably insist that private bondholders also accept slower repayment, S. P. said.

Even if creditors eventually get all of their money back, S. P. said, “such an extension of maturities is generally viewed to be less favorable to commercial creditors than repayment according to the original terms of the debt.”

The Greek government accused S. P. of responding to market and news media speculation.

“There have been no new negative developments or decisions since the last rating action by the agency just over a month ago,” the Ministry of Finance said in a statement. The downgrade “therefore is not justified.”

European political leaders as well as the European Central Bank have ruled out any kind of restructuring of Greek debt, saying it would undermine confidence in other countries like Portugal and Ireland and potentially create panic in financial markets. The strategy so far has been to play for time, in hopes that the economies of Greece, Portugal and Ireland will recover and make it easier for them to cope with their debts.

In Greece, the government is under pressure from its foreign creditors to raise money by privatizing state enterprises, but it is facing fierce opposition from powerful labor unions and critics within the governing Socialist party itself.

A program that is expected to go before Parliament next week is ambitious. It would authorize the selling of stakes in three utilities, the Greek railway, the racetrack and the national lottery. Also up for sale or lease are assets like disused facilities built for the 2004 Olympic Games and the site of the capital’s former airport, which the government of Qatar has expressed an interest in developing.

In all, the government hopes to raise 50 billion euros ($72 billion) by 2015 to help avert a default, although many analysts consider that figure to be overly optimistic. By pressing ahead, the government is seeking to demonstrate its resolve in meeting the terms of its bailout.

Indeed, representatives of the International Monetary Fund and the European Union are back in Athens to decide whether to release the next installment of the emergency loan package, estimated to be 12 billion euros. The fact that the Greek budget deficit for 2010 was revised upward, to 10.5 percent of gross domestic product from an estimated 9.5 percent, suggests that inspectors will be particularly strict this time.

Greek officials acknowledge in private that they may miss fiscal targets set by the I.M.F. because of a deeper-than-expected economic slump. In 2013, Greece will be required to raise as much as 30 billion euros ($43 billion) from the debt markets.

The government insists the privatizations will not be derailed.

“Commentators have doubted the Greek government’s resolve at every juncture of the crisis, and in each case the government has proven them wrong,” George Petalotis, a spokesman for the government, said in a statement.

The Greek labor unions, however, are determined to stop the sales, fearing that private ownership will lead to job cuts. They are lining up a barrage of protests, starting with a one-day general strike on Wednesday.

At the front line is Genop, the union representing workers at the Public Power Corporation, the state electricity company. Genop has threatened rolling strikes that could cause prolonged power reductions across the country just as the summer tourist season begins.

Niki Kitsantonis reported from Athens, and Jack Ewing from Frankfurt.

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