Standard and Poors have too much influence.

Greece angered by S&P rating cut

Investors in Greek debt may have to write-off 50pc of their loans “or more” if financial stability is to be restored to the beleaguered country, a leading rating agency warned.

Greece had to seek a bailout after numerous revisions of its budget deficit earlier this year. Photo: CORBIS

By Louise Armitstead, Chief Business Correspondent 6:57PM BST 09 May 2011


Standard & Poor’s said that “there is increased risk that Greece will take steps to restructure” its €110bn (£97bn) bail-out package which would result in a “distressed exchange” for bondholders.

At the same time, the rating agency cut Greece’s credit rating from BB- to B, dragging its debt further into junk territory to reflect its more gloomy views.
Greece hit back at the downgrade, angrily denying any imminent restructuring. The Greek finance ministry said that there have been “no new developments or decisions since the last rating action” by S&P a month ago so the agency’s views were “not justified.”

In a statement, the ministry added: “Decisions by ratings agencies must be based on objective data, policy makers’ announcements and realistic assessments on the conditions facing an economy… When such decisions are based simply on rumours, their validity is seriously cast in doubt”.

The fresh fears were sparked after it emerged over the weekend that secret talks had taken place in Luxembourg on Friday between Athens and some of the key European financial leaders. Rumours quickly spread that Greece had said it will not be able to raise €22bn by next year to meet its repayment schedule and was seeking a re-negotiation of the rescue package.

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The debt markets lurched in response, impacting all three countries that have been bailed-out. The cost of insuring Greek, Irish and Portuguese national debt against default rose and shares across Europe. The euro also fell against the dollar for the fourth day in a row.

Jeremy Stretch head of currency strategy at CIBC World Markets in London, said: “The Greek situation is like a slow motion car crash. The politicians know they have to dip into the pockets to find a solution to the problems facing Greece.”

Officials said the European Commission was looking to lower interest rates on the bail-out loans to both Greece and Ireland in an effort to avoid any restructuring.

A spokesman for Olli Rehn, the EU commissioner in charge of economic and monetary affairs, told reporters: “We hope for an agreement on an interest rate reduction in the coming weeks that can support Irish debt sustainability…The Commission is against debt restructuring.”

A spokesman for the German Finance Ministry Martin Kotthaus told a news conference: “There is no discussion at the moment about extending the payment schedule or lowering the interest rates for Greece.”

The ‘troika’ of the European Commission, the European Central Bank and the International Monetary Fund (IMF) are this week expected to work on ways to relieve the pressure on the stricken countries ahead of a meeting of European finance ministers on Monday 16th May.

As an alternative to reducing interest rates, the leaders could allow Greece to use Brussels’ emergency funding mechanism, the European Financial Stability Facility (EFSF), to roll over its maturing debts.

Separately, the Bank of Ireland announced the sale of its foreign currency exchange unit to Wells Fargo, the San Francisco-based bank. The Irish bank refused to give details of the sale of Foreign Currency Exchange Corporation but said it would have a negligible impact on the group’s capital position.