Agency cuts Greek rating to lowest in the world
Yield on Irish government bonds at highest level since introduction of euro
Published 14/06/2011 | 05:00
GREECE now has the lowest rating of any country, after a rating cut last night. Standard & Poor's (S&P) cut its rating for Greek government debt last night, amid rising confusion over planned "burden sharing" with bondholders.
The ratings agency made the cut after markets shut. It cut the Greek government's rating three places to CCC, the lowest of any country. S&P's Greek debt rating is now one notch below rival Moody's. Moody's downgraded Greece's debt on June 2.
S&P said Greece was "increasingly likely to restructure its debt". The agency said a restructuring was likely to result in a technical default.
Greece will be considered to be in default if it moves to delay its scheduled debt repayments, even if the debt is eventually repaid in full.
S&P blamed the current war of words between Germany and the European Central Bank, as well as Greece's finances, for the latest ratings cut.
"Risks for the implementation of Greece's EU/IMF borrowing programme are rising, given Greece's increased financing needs and ongoing internal political disagreements surrounding the policy conditions required by Greece's partners," S&P said in a statement.
The news came after Greek, Irish and Portuguese bonds were all battered in the markets yesterday.
The yield, or cost of borrowing on Irish government bonds, hit the highest level since the introduction of the euro last night at 11.37pc. The cost of insuring Greece, Ireland and Portugal's bonds against default also hit all-time highs.
All three countries are now seen as more likely to eventually default because German officials are insisting that private-sector bondholders should be involved in the latest round of the Greek bailout.
Euro area heads of government are due to sign off on a new Greek bailout on June 24, but Germany and the European Central Bank are at loggerheads over the terms of the deal.
Germany wants banks that lent to Greece to wait an extra seven years to be repaid, as their contribution to the rescue. Any move to impose a delay in repayment will be classed as a default.
The ECB fears that will hurt all financial markets and is against the German plan.
Both are crucial players in the bailout; without a compromise the whole deal could unravel, leaving Greece in danger of a real default. Analysts say that is unlikely but the S&P downgrade shows credit agencies see the German plan as tantamount to default.
ECB president Jean-Claude Trichet said yesterday that European leaders should "avoid whatever would trigger" a default.
S&P estimates that bondholders would recover between 30pc and 50pc of their investment if Greece fails to secure rescue loans and ends up in a real payment default.
Yesterday the head of the Organisation for Economic Cooperation and Development said the European debt crisis would be limited to Ireland, Greece and Portugal.
The rise in Irish and Portuguese bond yields led LCH Clearnet, a bond-clearing house, to increase the cash deposit it demands from banks using the bonds as collateral. (Additional reporting Bloomberg)