Greece: S&P downgrades Greece due to debt restructuring fears
March 30, 2011
On 29 March, Standard & Poor's S&P downgraded Greece's long-term sovereign credit rating from BB+ to BB-, which is three steps below investment grade, and maintained a negative outlook. The downgrade followed confirmation from European leaders at the 24-25 March European Council (EC) that any country that taps into the European Stability Mechanism (ESM) may be obligated to restructure its debt. The decision has caused anxiety within markets, concerned that government creditors will have preference over private sector bondholders. According to the rating agency, Greece will probably have to access official assistance beyond 2013, when the current European Financial Stabilization Facility will be replaced by the permanent ESM, which places commercial bondholders in a delicate situation. At its meeting, the European Council stated that ?the ESM will enjoy preferred creditor status in a similar fashion to the IMF, while accepting preferred creditor status of IMF over ESM". On the fiscal side, S&P stressed the downside risks to Greece's budgetary position, In 2010, the deficit may have exceeded the government's target 2010 of 9.6% of GDP and in 2011, the government is unlikely to meet the its 7.5% of GDP target.