Standard & Poor’s on Wednesday lowered Greece’s credit ratings by one notch, warning of another possible downgrade if further action is not taken by the country’s government in tackling European Union’s largest budget deficit.
The rating was cut to BBB+ from A- , S&P said in a statement.
S&P’s decision follows a similar move by Fitch Ratings on Dec. 8 which downgraded Greek debt to BBB+.
S&P said it decided to lower Greece’s ratings and leave the new rating on “creditwatch” negative because the Greek government’s recently announced fiscal measures are unlikely to secure a “sustainable” reduction in fiscal deficits and public debt burden over the long term.
“We believe that the government’s efforts to reform the public finances face domestic obstacles that would likely require sustained efforts over a number of years to overcome,” S&P said.
Prime Minister George Papandreou, who came to power in October promising higher spending and wages, outlined on Dec. 14 his government’s four-year fiscal consolidation plans aimed at trimming the fiscal deficit. He pledged to change pension and tax rules to deliver ‘radical’ actions to fix Greece’s budget. European Union regulators are trying to assure markets that Greece won’t default on its debt. But further downgrades may cast doubt on the eligibility of Greek government debt as collateral in ECB operations.
For 2009, Greece set a budget deficit target of 12.7% of GDP after Papandreu’s PASOK party won the October 4 elections. That was much higher than the 3.7% of GDP estimated earlier.
Greece’s public debt could reach 125% of the country’s GDP next year, the highest among members of the Eurozone.