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S&P Puts Greece, Portugal on Notice
LONDON--Standard & Poor's Corp. on Monday warned on Greek and Portuguese sovereign-debt ratings, raising issues with government finances that could lead to downgrades in the future.
S&P put Greece's single-A-minus rating on negative credit watch, saying the government's fiscal consolidation plans are "unlikely to secure a sustained reduction in fiscal deficits and the public debt burden." The move follows rival ratings agency Moody's Investors Service's decision Oct. 29 to put Greece's A1 currency ratings on review for possible downgrade.
S&P also revised its outlook on Portugal's sovereign-credit rating to "negative" from "stable," blaming a deterioration in public finances. There is now increased potential for a downgrade next year for Portugal, which has a long-term rating of single-A-plus at S&P, if deficits stay high, growth remains weak, and the debt burden continues to climb, the agency said.
S&P estimates that the government deficit this year will increase to 8% of gross domestic product, from 2.7% in 2008, and will stay at 8% in 2010. Without economic growth, the agency thinks Portugal's government will be reluctant to tackle the problem before 2011, and its stated aim of cutting the deficit to 3% of GDP by 2013 is "a considerable challenge."
Debt markets have been watching for news on Greek debt ratings amid pressure from the European Union and the European Central Bank to begin reducing deficits.
ECB President Jean-Claude Trichet, speaking in European Parliament Monday, again urged governments to rein in ballooning budget deficits in a "timely manner."
He described Greece's budget situation as "very difficult," but added that the Greek government is expected to take courageous steps to trim the deficit.
There was no official response from the Greek finance ministry on Standard & Poor's decision, but it doesn't usually comment on any moves by credit-rating agencies.
Economists at Greek banks said that the move by S&P didn't come as a surprise as it reflects growing investor concerns over Greece's fiscal outlook at a time when this year's budget deficit is forecast to reach 12.7% of GDP, more than four times the 3% limit for euro-zone members, and ballooning public debt, and follows similar moves by other leading international credit rating agencies.
Platon Monokroussos, Head of financial markets research at Eurobank EFG, said the negative watch from S&P was "a net negative for the domestic equity and government bond markets, reflecting rising investor worries over the country's fiscal outlook." "As indicated by the rating agency [S&P], they will wait for additional evidence with regard to the Greek government's resolve to proceed with fiscal consolidation measures before they decide whether to deliver a rating downgrade," Mr. Monokroussos added.
In bond markets Monday, the 10-year Greek government bond spread over Bunds, the German benchmark, nudged above 200 basis points on the announcement, before retracing slightly to 196.5 basis points. Late Friday, the spread was quoted around 175 basis points.
S&P said that while Greece's new government, led by Prime Minister Georgios Papandreou, has acknowledged a large 2009 budget shortfall and announced reforms that could bring greater transparency to the public finances, the ratings agency considers the plans for fiscal consolidation to be tentative.
"If we conclude that the government's strategy is aggressive enough to secure a significant and sustained decline in the public debt burden, the ratings could be affirmed," S&P said.
"Conversely, we could downgrade the rating by one notch to 'BBB+' if we view the government's fiscal assumptions as unrealistic, particularly given the risk that the Greek economy may underperform many of its euro-zone peers over the medium-term
LONDON--Standard & Poor's Corp. on Monday warned on Greek and Portuguese sovereign-debt ratings, raising issues with government finances that could lead to downgrades in the future.
S&P put Greece's single-A-minus rating on negative credit watch, saying the government's fiscal consolidation plans are "unlikely to secure a sustained reduction in fiscal deficits and the public debt burden." The move follows rival ratings agency Moody's Investors Service's decision Oct. 29 to put Greece's A1 currency ratings on review for possible downgrade.
S&P also revised its outlook on Portugal's sovereign-credit rating to "negative" from "stable," blaming a deterioration in public finances. There is now increased potential for a downgrade next year for Portugal, which has a long-term rating of single-A-plus at S&P, if deficits stay high, growth remains weak, and the debt burden continues to climb, the agency said.
S&P estimates that the government deficit this year will increase to 8% of gross domestic product, from 2.7% in 2008, and will stay at 8% in 2010. Without economic growth, the agency thinks Portugal's government will be reluctant to tackle the problem before 2011, and its stated aim of cutting the deficit to 3% of GDP by 2013 is "a considerable challenge."
Debt markets have been watching for news on Greek debt ratings amid pressure from the European Union and the European Central Bank to begin reducing deficits.
ECB President Jean-Claude Trichet, speaking in European Parliament Monday, again urged governments to rein in ballooning budget deficits in a "timely manner."
He described Greece's budget situation as "very difficult," but added that the Greek government is expected to take courageous steps to trim the deficit.
There was no official response from the Greek finance ministry on Standard & Poor's decision, but it doesn't usually comment on any moves by credit-rating agencies.
Economists at Greek banks said that the move by S&P didn't come as a surprise as it reflects growing investor concerns over Greece's fiscal outlook at a time when this year's budget deficit is forecast to reach 12.7% of GDP, more than four times the 3% limit for euro-zone members, and ballooning public debt, and follows similar moves by other leading international credit rating agencies.
Platon Monokroussos, Head of financial markets research at Eurobank EFG, said the negative watch from S&P was "a net negative for the domestic equity and government bond markets, reflecting rising investor worries over the country's fiscal outlook." "As indicated by the rating agency [S&P], they will wait for additional evidence with regard to the Greek government's resolve to proceed with fiscal consolidation measures before they decide whether to deliver a rating downgrade," Mr. Monokroussos added.
In bond markets Monday, the 10-year Greek government bond spread over Bunds, the German benchmark, nudged above 200 basis points on the announcement, before retracing slightly to 196.5 basis points. Late Friday, the spread was quoted around 175 basis points.
S&P said that while Greece's new government, led by Prime Minister Georgios Papandreou, has acknowledged a large 2009 budget shortfall and announced reforms that could bring greater transparency to the public finances, the ratings agency considers the plans for fiscal consolidation to be tentative.
"If we conclude that the government's strategy is aggressive enough to secure a significant and sustained decline in the public debt burden, the ratings could be affirmed," S&P said.
"Conversely, we could downgrade the rating by one notch to 'BBB+' if we view the government's fiscal assumptions as unrealistic, particularly given the risk that the Greek economy may underperform many of its euro-zone peers over the medium-term
