Standard and Poor’s Ratings Services has dropped Greece’s sovereign credit rating further into junk territory, warning that the country could run out of cash before it is able to negotiate a new agreement with official creditors.
The new Greek government, elected two weeks ago on an anti-austerity platform, has been touring European capitals to drum up support for debt forgiveness but initial plans to shore up the country’s finances have fallen flat. According to The Wall Street Journal, Greek officials fear the government could run out of cash as soon as early March.
In downgrading Greece’s rating to B- from B on Friday, S&P said liquidity restraints on Greek banks would limit the time the new government has to clinch a deal with creditors.
“Although the newly elected Greek government has been in power for less than two weeks, we believe its limited cash buffers and approaching debt redemptions to official preferred creditors constrain its negotiating flexibility,” S&P said in a statement, according to Reuters.
“Liquidity constraints have narrowed the timeframe during which Greece’s new government can reach an agreement with its official creditors,” the statement said.
The WSJ reported that diminishing tax revenues in the run-up to the January elections have pushed Greece’s finances to a precarious point. In addition, the European Central Bank has decided to no longer accept Greek governments bonds as collateral from banks seeking funds. Greek lenders can still get emergency financing from their own central bank, but that would be more expensive and could also be cut off by the ECB.
S&P said both Greece’s long- and short-term ratings remained on “creditwatch negative,” meaning they could be lowered again, and warned that drawn out talks with creditors could produce a worsening economic situation in the country.
Moody’s Investors Service announced Friday it had placed Greece’s Caa1 government bond rating on review for downgrade, citing the “high level of uncertainty” over the outcome of talks between Greece and its official creditors.
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