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S&P Weighing Possible Downgrade of Greece

AP
Friday, 3 Dec 2010 | 3:44 AM ET

Rating agency Standard & Poor's said Thursday it may downgrade Greece's long-term debt if new European bailout rules prove onerous to private holders of the country's bonds.

Steve Allen | Brand X Images | Getty Images

S&P said it will decide whether to downgrade Greece within three months, by which time the new debt-crisis rules will be clear. S&P issued a similar warning about Portugal this week.

European finance ministers agreed Sunday to create a permanent mechanism to solve future debt crises in the 16 countries that use the euro. The mechanism, which will be launched in mid-2013, could force investors such as banks or hedge funds to take losses if a country runs out of money.

S&P said the rules may make it likely that government lenders would be repaid to the detriment of the private-sector debt holders.

"We believe ... the (European bailout plan) could have negative implications for the probability of nongovernmental holders of sovereign debt being paid in full and on time," S&P analyst Moritz Kraemer said in a note.

Greece avoided bankruptcy in May after getting a loan package from EU partners and the International Monetary Fund, set to reach $150 billion over the next three years. In return, its government imposed a strict austerity plan.

With Tuesday's move, S&P put Greece's "BB+" long-term sovereign credit rating on CreditWatch with negative implications.

Contact Europe: Economy

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