By Nick Mann | 8 August 2012
Ratings agency Standard & Poor’s has downgraded Greece’s credit outlook from stable to negative, saying the country could need up to €7bn in additional bailout funds.
In a statement issued last night, S&P said delays in implementing fiscal consolidation measures and the country’s worsening economic situation made a fresh bailout more likely.
The Greek government will also find it difficult to make the cuts needed to secure the next tranche of the £110bn package already agreed with the ‘troika’ – the European Commission, European Central Bank and International Monetary Fund.
Greece’s triple C credit rating with S&P means it is already several ranks below investment status, making it more difficult for the country to raise money on the global financial markets.
S&P said that its rating could be downgraded further if it failed to both meet its current deficit and arrears targets and agree fresh funding from the troika to make up the shortfall.
‘We see the likelihood of shortfalls, owing to election-related delays in the implementation of budgetary consolidation measures for the current year, as well as the worsening trajectory of the Greek economy,’ it said.
S&P now expects the Greek economy to shrink by 10%–11% in 2012/13, compared with the 4%–5% contraction expected by the European Union and IMF.
‘In our opinion, the deepening contraction in Greek gross domestic product beyond the EU/IMF programme's assumptions and the related worsening of the fiscal position imply a high likelihood that Greece will require additional financing of as much as €7bn (3.7% of GDP) for 2012,’ it said.
‘This takes into account a fiscal deviation of at least €3bn (1.5% of GDP) and IMF year-end arrears targets, which imply the need to pay arrears down by about €4bn or 2% of GDP.’
S&P noted, however, that its estimate for the amount needed under any additional bailout could be reduced if Greece’s deficit reduction targets were relaxed.
Officials from the troika visited Greece last week to assess its progress in meeting the terms of the bailout deal and are due to make a further inspection next month.
