The outlook on Greece’s CCC rating, already eight levels below investment grade, was revised to negative from stable, S&P said in a statement yesterday. The change reflects the risk of a downgrade if Greece is unable to obtain its next disbursement of bailout loans from the EU and International Monetary Fund rescue package, the rating company said.
Representatives from the so-called troika of the European Commission, European Central Bank and IMF return to Athens early next month to review Greece’s economic program, which will determine whether the nation will receive further funds from rescue packages, amounting to 240 billion euros ($297 billion), needed to remain in the 17-nation euro area.
Prime Minister Antonis Samaras has held meetings with the leaders of the two parties supporting his coalition government since it was formed following elections on June 17 to hash out a 11.5 billion-euro package of budget cuts demanded by the creditors for the next two years. Finance Minister Yannis Stournaras said yesterday the government is still working on identifying almost a third of the cuts.
Greece’s economy has been squeezed by the fiscal tightening needed to qualify for rescue-loan disbursements, with gross domestic product set to drop for a fifth straight year. The country may need as much as 7 billion euros in loans this year, with GDP seen shrinking as much as 11 percent in 2012 and 2013, S&P said.
Bond-market history indicates that the utility of sovereign ratings may be limited. Almost half the time, yields on government bonds fall when a rating action by S&P and Moody’s Investors Service suggests they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s.
The euro fell 0.2 percent, trading at $1.237 as of 10:22 a.m. in Athens. The MSCI Asia-Pacific Index rose 0.3 percent.
Greece may need to consider reducing the number of state employees to achieve the fiscal targets, Stournaras told reporters in Athens yesterday after a meeting with President Karolos Papoulias. He said the savings may be achieved by reviving a “labor reserve” for civil servants, in which excess staff are placed in a special program for a period instead of being dismissed.
The comments drew immediate criticism from the leaders of the two coalition parties supporting the government.
Fotis Kouvelis, the leader of the Democratic Left party, told reporters after meeting with Samaras and Evangelos Venizelos, the former finance minister, that he is “categorically opposed” and that it’s important to “avoid adding more unemployed people to the ranks of those who are already unemployed.” The plan is a “fiasco,” he said.
“We see the likelihood of shortfalls, owing to election- related delays in the implementation of budgetary consolidation measures for the current year, as well as the worsening trajectory of the Greek economy,” S&P said. “As a result of this economic weakness, and due to an absence of progress on tax administration reforms, collection of personal, corporate and indirect taxes is well below target for 2012.”
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