MercoPress. South Atlantic News Agency

S&P likely to downgrade Greece’s rating to “selective default”

John Chambers, the chairman of S&P sovereign rating committee

Standard & Poor's will likely downgrade Greece's ratings to “selective default” when the country concludes its debt restructuring, but that will not necessarily destroy the credibility of the European Union, an official with the ratings agency said on Tuesday.

“It's not a given that Greece's default would have a domino effect in the Euro zone,” John Chambers, the chairman of S&P sovereign rating committee, said in an event organized by Bloomberg.

The country is pursuing talks on a debt swap with private creditors that would lower Greece’s debt to 120% of GDP by 2020, the Finance Ministry said on Monday Euro governments have sought to fill a deeper-than-expected hole in Greece’s finances by having investors accept a lower interest rate on exchanged bonds.

“The very least that would happen in Greece is an exchange that would qualify by our criteria as a default,” Chambers said at the Bloomberg Link Sovereign Debt Conference in New York. “Their debt burden is still going to be very, very high. So their rating post-default will still be a low rating”.

Greece has had a CC long-term credit ranking, 10 steps below investment quality, with a negative outlook since July, according to data compiled by Bloomberg.

“The key here is for the rest of the euro zone to keep to the plans that they’ve enunciated,” Chambers said. “It’s going to be a long slog.”

Meanwhile European Commissioner for Economic and Financial Affairs, Olli Rehn, admitted on Tuesday that “many factors indicate we could undergo a mild recession, at least in the first half six months of the year.”

As the year’s first Ecofin council meeting ended Rehn added that there’s has been a certain improvement in the market situation in the last two weeks, “although deceleration continues.”

“The return to growth will probably take place on the second half of the year,” he added.