Brussels, 09/05/2011 (Agence Europe) - On Monday 9 May, Standard & Poor's credit rating agency decided to downgrade Greece's sovereign debt from BB- to B, following talks on Friday among big European donor countries about providing Greece with further financial aid. In a press release, Standard & Poor's explained that in the event of the extension of maturity of the loans to Greece, “we believe the eurozone creditor governments would likely seek 'comparability of treatment' from commercial creditors in the form of their similarly extending bond and loan maturities”.
The Greek government immediately criticised the decision to downgrade: “The downgrading of Greek government debt by Standard and Poor's today comes at a time when there have been no new negative developments or decisions since the last rating action by the agency just over a month ago and therefore is not justified. Credit rating decisions should be based on objective data, policy-makers' announcements and realistic assessments of the conditions facing an economy. Not on market rumours and press reports.”
Big European creditor countries flock to examine Greece's health. In Luxembourg on Friday, German Finance Minister Wolfgang Schäuble, Spanish Finance Minister Elena Salgado, French Finance Minister Christine Lagarde, Italian Finance Minister Giulio Tremonti, Luxembourg's Finance Minister Jean-Claude Juncker, EU Economic and Monetary Affairs Commissioner Olli Rehn and President of the European Central Bank Jean-Claude Trichet examined the situation in Greece with Greek Finance Minister Georges Papaconstantinou. German newspaper Der Spiegel reports that the meeting discussed the option of providing Greece with further financial aid, but all participants categorically ruled out any restructuring of Greece's debt (in other words default) or the country being forced out of the eurozone.
After the meeting, Juncker (who chairs the Eurogroup) said that Greece would not be leaving the eurozone but the politicians did think an additional structural adjustment programme was needed. He said the question would be discussed by the Eurogroup in Brussels on 16 May 2011, when the eurozone finance ministers will be asked to endorse the austerity programme negotiated in return for aid for Portugal (see EUROPE 10373).
The Greek structural adjustment programme that has been underway for a year now in return for international aid of some €110 billion over three years is supposed to put the country in a position to drum up its own cash from the money markets in 2012, but the interest rates demanded to roll over Greek debt on the markets (15% for 10-year loans, for example) are too high for the debt-ridden country, whose economy is in recession. Greece has to pay back €23 billion in debt and €4.5 billion in interest by the summer of 2012.
What next? The eurozone leaders may decide to provide further cash themselves because restructuring (writing off Greek debt) is ruled out at the moment. It might be decided to reschedule the debt, along with more time to meet the EU budget rules. Eurozone leaders may repeat their March 2011 decision to extend the maturity of the loans to Greece (see EUROPE 10335).
The Eurogroup may provide cash from the temporary, intergovernmental EFSF bailout fund. In March, the eurozone decided to increase the fund's lending capacity to €440bn and to allow the EFSF to buy up sovereign debt on the primary market. The aid would take the form of Greece issuing bonds that would immediately be bought up by the EFSF. “We [Greece] will either go out to markets or use the recent decision by the EU Council that allows the European fund (EFSF) to buy Greek bonds. That was what the discussion was about”, said Papaconstantinou on Friday. Nevertheless, the changes to be made to the EFSF by June this year require unanimous agreement within the eurozone and Finland's vote will therefore be crucial, given the rise of euroscepticism and resistance to providing aid to other eurozone countries
Greece's debtors are attaching strings to the notion of increased aid. On Friday, they are reported to have been convinced by the Greek government's determination to continue with the structural adjustment programme apace by clamping down on tax evasion. They are reported to have asked Papaconstantinou to speed up the privatisation programme (expected to net some €50 billion over five years). French newspaper Les Échos reports that the idea is to bring in €25 billion this year and next.
Representatives of the European Commission, the European Central Bank and the International Monetary Fund are in Greece at the moment on a fact-finding mission and are expected to publish the results in a fortnight. According to debt figures certified as accurate by Eurostat, Greece's public deficit and public debt, both as a percentage of GDP, stood at 10.5% and 142.8% respectively in 2010. The public debt is forecast to reach €350 billion in 2011, more than 150% of GDP. (M.B./transl.fl)