In another blow as it’s negotiating with international lenders, Greece’s credit rating was dumped into junk status by Standard & Poor’s, a notch drop.
The agency said the change means it believes the country will default on its commercial debt within a year if it can’t strike a deal with its creditors.
Greece has shown it is giving higher priority to its pensions and other domestic spending instead of paying back banks and lenders, S&P’s said, a big no-no for investors.
The change came after Greece on June 5 exercised an option to miss a payment of 300 million euros ($337.87 billion) and bundle it with others for a total of 1.6 billion euros ($1.8 billion) due the end of the month.
The move reflects “our opinion that in the absence of an agreement between Greece and its official creditors, the Greek government will likely default on its commercial debt within the next 12 months,” the agency said in its report.
The downgrade comes as Greece is asking the troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) to release a long-delayed 7.2-billion euro ($8.1 billion) installment being held back because the government refuses to implement more austerity measures.
Without the money, Greece can’t pay back the creditors providing them with the money to pay back previous loans at the same time speculation is growing Greece will need a third bailout of 50 billion euros ($56.3 billion) as two previous rescue packages totaling 240 billion euros ($270.34 billion) is running out.
Prime Minister Alexis Tsipras has said he would make some concessions, but would not impose further pension cuts as one of the red lines he said he won’t cross.
S&P also noted the flight of funds from Greek banks which have lost more than 30 billion euros ($33.79 billion) in the last eight months as depositors fear a default and Eurozone exit or capital controls and account confiscations.
In addition, any agreement between Greece and its creditors in the next two weeks would likely only provide temporary relief, covering payments for the next three months, S&P said.