S&P just downgraded Greece. "We have lowered our long-term sovereign credit rating on Greece to 'CCC' from 'CCC+' to reflect 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 credit-rating agency warned. This comes as little surprise for euro-crisis watchers who've seen Greece hopelessly pull itself out of crushing debt as its economy suffers from a full-blown depression. "As its liquidity position continues to deteriorate, Greece appears to be prioritizing other spending items over debt servicing," S&P explained. "In our view, without a turnaround in the trajectory of nominal GDP and deep public-sector reform, Greece’s debt is unsustainable." S&P's assessment is bleak and its outlook is officially "negative," which means another rating downgrade could happen within a year. But there is a bit of hope. "The ratings could stabilize at the current level if we believe that a new financial support program will be agreed with policy conditions that satisfy both the political priorities in Greece and the creditor countries," S&P said. "Such a scenario could contribute to promoting political stability, tax compliance, and a gradual economic recovery." Here's the full announcement from S&P: Greece Long-Term Rating Lowered One Notch To 'CCC'; Outlook Negative OVERVIEW Greece delaying its payment to the International Monetary Fund (IMF) lastFriday, June 5, appears to demonstrate that the Greek government isprioritizing pension and other domestic spending over its scheduled debtservice obligations. We have lowered our long-term sovereign credit rating on Greece to 'CCC'from 'CCC+' to reflect our opinion that in the absence of an agreementbetween Greece and its official creditors, the Greek government willlikely default on its commercial debt within the next 12 months. The outlook is negative. RATING ACTION On June 10, 2015, Standard & Poor's Ratings Services lowered its long-termsovereign credit rating on the Hellenic Republic to 'CCC’ from 'CCC+’. The 'C'short-term rating is unchanged, and the outlook is negative. As defined in EU CRA Regulation 1060/2009 (EU CRA Regulation), the ratings onGreece are subject to certain publication restrictions set out in Art 8a ofthe EU CRA Regulation, including publication in accordance with apre-established calendar (see "Calendar Of 2015 EMEA Sovereign, Regional, AndLocal Government Rating Publication Dates: First-Quarter Update," April 8,2015). Under the EU CRA Regulation, deviations from the announced calendar areallowed only in limited circumstances and must be accompanied by a detailedexplanation of the reasons for the deviation. In Greece's case, the deviationwas prompted by the decision of the central government to delay making ascheduled debt service payment to the IMF that was due on June 5, 2015. RATIONALE As its liquidity position continues to deteriorate, Greece appears to beprioritizing other spending items over debt servicing. In our view, without aturnaround in the trajectory of nominal GDP and deep public-sector reform,Greece’s debt is unsustainable. The downgrade reflects our view that in theabsence of an agreement with its official creditors, Greece will likelydefault on its commercial debt within the next 12 months. The European Central Bank (ECB) is currently providing financing to Greece’sbanks and economy at a level exceeding 60% of GDP. Continuous withdrawals ofdeposits from Greek banks increase the possibility that the government couldimpose capital controls to staunch further deposit outflows and issue aparallel currency alongside the euro. The uncertainty around Greece’srelations with its creditors and its broader political stability is weighingon the economy; tax payment arrears rose materially in May, while thegovernment appears to be conserving cash by delaying payments to suppliers. Aweakening underlying fiscal position raises questions about the realism of anyagreement with Greece’s creditors on fiscal targets, as projections for taxreceipts and real and nominal GDP appear speculative. Even if an agreementwith official creditors were to be reached over the next fortnight, we do notexpect that such an agreement would cover Greece’s debt service requirementsbeyond September. OUTLOOK The outlook is negative, given the risk of a further worsening of liquidityfor the sovereign, its banks, and the economy. Our understanding is that theGreek government has decided to consolidate this month's €1.6 billion in debtservicing owed to the IMF, an official creditor, into a single payment on June30. If an agreement were reached between Greece and its official creditorsover the next week, we would still expect this to involve a temporarythree-month liquidity infusion. We do not consider it likely that there wouldbe any official debt relief or more substantial financing agreed to in thenext few days. In our view, this implies that confidence and investmentactivity will remain weak and growth prospects muted. The negative outlook means that we could lower the rating again within a yearif we perceive that the likelihood of a distressed exchange of Greece'scommercial debt will increase further. This could be the case if, for example,we took the view that further official creditor disbursements would remainelusive, resulting in the Greek government's inability to honor all itsfinancial obligations in full and in a timely manner. The ratings could stabilize at the current level if we believe that a newfinancial support program will be agreed with policy conditions that satisfyboth the political priorities in Greece and the creditor countries. Such ascenario could contribute to promoting political stability, tax compliance,and a gradual economic recovery.Join the conversation about this story » NOW WATCH: Animated map shows what Europe would look like if all the Earth's ice melted
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