S&P Places Greece on Negative Watch, Lowers Forecasts
Rating agency Standard & Poor's took action late Tuesday on Greece and held its rating at CCC/C but placed the ailing nation on negative watch. S&P cited that Greece is likely to need additional financing from the EU/IMF to fund its budget this year and also a worsening economy.
The news comes as talks between Greece and its creditors, known as the Troika, failed to reach a consensus on budget measures to allow for the release of the next tranche of the bailout payment. Unless Greek officials can come to an agreement, Greece may be unable to roll over its debt and could default.
S&P cited in its action that Greece may need further financing from European leaders just to fund itself through the rest of 2012. The worsening economy is hurting tax revenues and increasing deficits. S&P also pointed out that Greece's financial sector is in the midst of a massive credit crunch. They also lowered their forecast for Greece's GDP to a 10-11 percent contraction, whereas the Troika only has estimated a 3-4 percent contraction. S&P still sees net government debt at 170 percent of GDP and sees payments in arrears totaling an extra 3-3.5 percent of GDP.
The sour outlook on Greece is not good for the nation, as it struggles to appease creditors to receive the next tranche of the bailout. Greece needs the funds to pay off maturing debt, otherwise it will have to do so with an auction of bills. A sticking point between Greece and its creditors is public sector jobs: Greek leaders want to protect jobs in the discussions whereas the Troika wants further cuts to public payrolls to fill the gap of budget cuts.
Only a few weeks ago, it seemed likely that Greece and its creditors would reach a deal, as Greek leaders were said to have agreed to approximately 11.5 out of 13 billion euros of budget cuts. However, the remaining 1.5 billion euros of cuts have yet to be resolved. Greece wants to push for further asset sales, however the pace of privatization has been dismal, according to S&P. Greece has approximately one month until it needs the funds to repay the maturing debt.
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