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S&P downgrades Greece, says more loans likely

By Elena Becatoros

Associated Press

Published: Tuesday, March 29 2011 10:45 a.m. MDT

Greek Prime Minister George Papandreou , left, speaks next to Martin Schulz, leader of the Socialists and Democrats in the European Parliament, during a news conference in Athens, on Tuesday, March 29, 2011 .Credit agency Standard & Poors downgraded Greece's credit rating again Tuesday, saying it was "highly likely" that the country would need to take further bailout loans beyond the ones it already has. Papandreou criticized the move, describing ratings agencies as too heavily focused on risk after failing to react in time to the global financial crisis caused by the collapse of the subprime mortgage market.

Petros Giannakouris, Associated Press

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ATHENS, Greece — Standard & Poors downgraded Greece's credit rating again Tuesday, saying it was "highly likely" the country would need to take further bailout loans beyond the ones it already has.

S&P's downgrade to BB- from BB+ puts Greece's rating deeper into junk status. The agency said the country's borrowing needs are such that it will likely need more help on top of the €110 billion ($155 billion) loans it is receiving from the International Monetary Fund and fellow eurozone countries.

Greece, which was rescued from the brink of default last year by the three-year bailout package, rejected the assertion, with the Finance Ministry saying the country was on track to return to borrowing on the international market by 2012. Government officials have previously said they hoped to be able to borrow on the market within 2011.

In return for the bailout funds, Greece has been overhauling its economy and implementing strict austerity measures, including public sector salary cuts and increased taxes.

But it remains for now essentially blocked out of the long-term debt market by prohibitively high interest rates demanded for its bonds, and the country has been struggling to meet revenue targets.

"Given Greece's persistently significant borrowing needs, we believe that it is highly likely that Greece will access" bailout funds available for eurozone countries, S&P said.

Earlier this month, the eurozone agreed to set up a permanent bailout fund for countries that run into financial trouble, an effort to counter doubts over the credibility of the euro. The European Stability Mechanism will start in mid-2013, after the eurozone's existing fund, the European Financial Stability Facility, runs out.

S&P said that the terms under which a country will be able to borrow from the ESM include "a potential precondition" of sovereign debt restructuring.

The preconditions, "against the background of Greece's hefty government debt and high borrowing needs, undermine Greece's plans to resume commercial borrowing by mid-2013, when the current EU/IMF program of official financial support terminates, and increase the likelihood of debt restructuring," it said.

But Prime Minister George Papandreou insisted his government's austerity measures and an overhaul of the economy were working and that Greece would not need to tap any further rescue funds.

"The entire effort being made is for us to return to the (bond) market as early as possible," he said during a previously scheduled press conference with Martin Schultz, leader of the Socialists and Democrats in the European Parliament. "And I believe that we will succeed so that we do not have to make use of the mechanism."

The Finance Ministry criticized the credit agency's move as "an unbalanced and unjust assessment," saying it did not take into account the measures the government was taking.

"S&P's downgrade is based on a one-sided and unjustified assessment of the European Council's decisions and the budgetary risks facing Greece, without giving due weight to the actions the Greek government is taking to address these risks," it said in a statement.

The government has repeatedly criticized downgrades by credit agencies as unjustified and a result of overcompensation for not having been prudent enough in the past over looming crises.

"We have seen the ratings agencies go from the bubble of euphoria to the panic of risk. Only two years ago they were rating AAA all the toxic bonds that created the crisis," the prime minister said.

He said the agencies, including S&P, "are reflecting a systemic problem with the euro but they are also making the markets panic."

Papandreou said his country was being downgraded "not because of what Greece is doing but because of the decisions being taken by the EU that are not considered as going far enough."

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