‘Probably the most negative positive I have ever read’ | FT Alphaville

‘Probably the most negative positive I have ever read’

Evolution Securities fixed income guru Gary Jenkins is bemused by S&P’s comments on its decision to move Greece off CreditWatch:

I have read many rating agency reports over the years and really should have learnt by now not to take them so seriously, but this particular one is probably the most negative positive comment that I have ever read. With maybe the exception of the Moody’s (I think) report on GM many years ago.

That and the affirmation and withdrawal from watch are the most positive comments. Aside form that the agency states that “we expect much weaker medium term growth than official forecasts, and, consequently, an erosion of the tax base, while, in addition, we understand that age related expenditures are likely to increase by 0.8% of GDP over 2010-2015……if the currently high borrowing costs persist, the large and growing debt burden is likely to increase further. In light of these considerable budgetary challenges and the difficult economic environment, it remains to be seen whether Greece’s leaders will demonstrate the political will necessary to achieve fiscal consolidation.”

The outlook is negative which reflects their view “of the governments ability to sustain reform momentum over the medium term…..it indicates further downgrade potential if the government fails to address negative deviations from its budgetary consolidation path or implement the currently planned structural reforms.”

If the decision was based upon probable EU support then fair enough, after all if the rest of the EU is standing by ready to act as lender of last resort it must reduce the probability of default. However S&P make it clear that they are rating Greece on its stand-alone credit rating fundamentals. It reads like they do not want to be part of potentially creating any problem, but they want to say enough negative comments so that if it does all go horribly wrong in the future, they can point to said commentary and say “we did warn you!”

What, a ratings agency trying to cover its own back? Perish the thought.

Related links:
Words you didn’t expect to hear – Greek edition (updated) – FT Alphaville
The Greek boy who cried (no) wolf — and a €25bn bailout – FT Alphaville
Greece faces a Herculean adjustment task – FT Alphaville