MercoPress. South Atlantic News Agency

S&P downgrades Greek debt as junk; “haircut” a growing possibility

Finance Minister George Papaconstantinou

Standard and Poor's cut Greece's credit rating further into junk territory, reflecting growing doubts that the Euro zone's most fragile economy can manage its debt without imposing losses on private bondholders.

One year into an international bailout, Greece is struggling with weak revenues and a deep recession, fuelling speculation that even a more lenient rescue deal with the European Union and International Monetary Fund won't be enough to pull it out of the fiscal mess that triggered the Euro zone's crisis.

“In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds,” the agency said in a statement, warning that more downgrades could come.

S&P said its decision to cut Greece's rating was triggered by the likelihood that Euro zone countries would want private holders of Greek government debt to extend bond maturities, accepting later repayments, now that governments are under pressure to ease their terms on the bailout that saved Greece from bankruptcy last year.

It said its projections suggest that reductions, known as a haircut, of 50% or more of the bonds' original value could be needed to make Greece's debt burden sustainable.

In Athens Finance Minister George Papaconstantinou said Greece faces more tough times ahead but will manage to exit the debt crisis. Greek media reports indicate that EU-IMF auditors have given the government negative marks over progress in the implementation of the plan to exit the crisis.

“Our country went through difficult times, faces tough times and will face more in the near future, because it relied on a false development model. We fooled ourselves, but we will exit the crisis,” said Papaconstantinou, addressing a forum held by Transparency International Greece over corruption and tax evasion.

The new progress report over the implementation of the Stability and Growth program written by the technical team of EU- IMF auditors who reviewed the latest data over the past week is negative, reported Greek media on Monday.