The elevation to power of the Radical Left SYRIZA party has led to another ratings agency, Standard & Poor’s. ready to downgrade the country’s credit amid fears it could default on loans and be pushed out of the Eurozone.
S&P’s has placed its ratings on Greece’s sovereign debt on watch for downgrade, following a move earlier this month by Fitch Ratings, which changed its outlook on Greece’s ratings to negative, as did Moody’s. S&P and Fitch have their ratings at B, which is five notches below investment-grade territory.
“The CreditWatch placement reflects our view that some of the economic and budgetary policies advocated by the newly elected Greek government, led by the left-wing SYRIZA party, are incompatible with the policy framework agreed between the previous government and official creditors,” S&P said in a news release.
“In our opinion, if the new Greek government fails to agree with official creditors on further financial support, this would further weaken Greece’s creditworthiness.”
S&P also cited the country’s weak Gross Domestic Product (GDP) growth as a “pronounced risk” to its debt sustainability.
Prime Minister and SYRIZA leader Alexis Tsipras said he would seek a renegotiation of harsh austerity terms that came with two bailouts of 240 billion euros ($272 billion) from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) or walk away from at least half the debt, which has rattled the Eurozone, fearing the financial bloc could be jeopardized.
The firm, calling the country’s recovery “gradual but weak,” increased its rating on Greece to B from B-minus in September, while assigning it a stable outlook. At the time, S&P cited strong demand for Greek bonds, as well as progress from the government’s finance ministry in achieving budget surpluses.
But on Jan. 28, S&P warned that it could lower Greece’s ratings if negotiations with creditors fail, although Tsipras said he wants to keep Greece in the Eurozone while simultaneously seeking debt relief.
The firm’s concerns were echoed by other market observers.
RBS macro credit strategist Alberto Gallo told the Wall Street Journal that he thinks the country’s negotiations with creditors are “likely to become more confrontational.” Yet, he said there could be ways forward to break any potential stalemates.
“We think in the end the best solution for both parties is a renegotiation of terms, not only maturities, but linking debt payment to growth targets,” Gallo said. “This would avoid moral hazard like in a straight haircut, but also make payment more realistic.”