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Wednesday, rating agency Standard & Poor's kept Greece's 'BBB+' long-term and 'A-2' short-term sovereign credit ratings on CreditWatch with negative implications.
"In our view, a further downgrade of one to two notches is possible within a month," S&P's credit analyst Marko Mrsnik said.
On December 16, the rating agency had lowered the long-term rating to its current level and maintained it on CreditWatch. At the same time, it placed the short-term rating on CreditWatch with negative implications. Since then, the Greek government has taken measures to cut its budget deficit to 8.7% of GDP by the end of 2010 from the current 12.7%.
"Greece's large budgetary and external imbalances, combined with a continued weak external economic environment, suggest, in our opinion, that deflationary pressures are likely to compound the country's economic travails," Mrsnik said. "Consequently, we anticipate further pressures in Greece's banking sector, which would have residual effects on public finances." The rating agency said its ratings on Greece will continue to depend on the sovereign's stand-alone credit rating fundamentals and not benefit from an implicit rating floor in case of extraordinary support organized by the EMU and its member states.
"If public support for the government's stability program decreases from its current level, compromising its execution, we could also lower the ratings," Mrsnik said.
Despite the currently apparent strong public support for the Greek government, implementation risks will persist over the course of the government's current stability program, S&P said.
Elsewhere, Bloomberg reported that Moody's Investor Service may cut its sovereign debt rating on Greece within months if the country fails to meet its deficit reduction plans. If Moody's lowers its ratings, Greek government bonds would no longer be eligible as collateral at the European Central Bank. Currently, the ECB accepts bonds rated BBB- by at least one rating agency as collateral for loans.
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