Greece became the lowest-rated country in the world in the rankings of Standard & Poor's today, putting it below Ecuador, Jamaica, Pakistan and Grenada.
The rating agency cut Greece three notches and warned it would view a likely debt restructuring as a default.
This was the latest blow for the country's Socialist government, which is scrambling to push a new austerity package through parliament to clinch continued funding under a year-old bailout plan despite rising public discontent.
Barely a year after Athens was granted a first €110 billion aid package, the European Union, the IMF and the European Central Bank are working on a second funding deal.
Meanwhile, European banks holding Greek debt appear to be moving towards agreement on buying new bonds to replace those they hold that reach maturity.
S&P said European policymakers looked increasingly likely to impose a restructuring of Greece's debt – either via a bond swap or by extending bond maturities – as a means of having the private holders of Greek bonds share the burden.
"In our view, any such transactions would likely be on terms less favourable than the debt being refinanced, which we, in turn, would view as a de facto default according to Standard & Poor's published criteria," the agency said.
In such a case, S&P added, Greece's credit rating would be lowered to "selective default," or SD, while the ratings on the country's debt instruments would be cut to D.
It cut Greece's long-term sovereign credit rating to CCC, four steps away from default, from B. The short-term rating was affirmed at C and all ratings were removed from credit watch.
The move takes S&P's rating of Greece one notch below Moody's Caa1, while Fitch ranks Greece at B+. This makes Greece the lowest country in S&P's rankings.
S&P said the outlook on the long-term rating remained negative, a sign that another downgrade is likely in the next 12 to 18 months.
Reacting to the downgrade, Greece said the move by S&P overlooked the government's commitment to carry on with tough fiscal efforts to repair public finances and remain a member of the 17-member euro currency club.
"The decision also overlooks the government's moves to avoid any problems relating to Greece's contractual obligations, as well as the will of all Greeks to plan our future inside the euro zone," the Finance Ministry said in a statement.
Reuters
