The rating agency has just cut Greece’s sovereign rating (Hellenic Republic) by one notch: from A to A-:
Following a relatively modest improvement in the general government deficit since 2004, Greek public finances are, in our opinion, entering the economic downturn with high deficits and gross debt estimated at around 3.5% of GDP and 94.1% of GDP in 2008, respectively. We believe that repeated failures to stick to budgetary plans and a longstanding over-reliance on the revenue side, aggravated by regular deficit-increasing one-offs and expenditure slippages, have led to structural weaknesses in fiscal management.
S&P warned earlier this week that it was reassessing ratings on several other European countries, among them Spain, Portugal and Ireland.
The spread on debt from the four countries over German government bond yields has widened sharply - moves which will add to the economic tension in the Eurozone. Intraday CDS movements have spiked too: 5yr CDS on Greece widened 18bp on the downgrade.
The below interesting graph is from Calyon. Putative downgrades of Spain (to AA+) Ireland (to AA+) Portugal (to A+) have been factored in as well as today’s Greek downgrade.
Interesting to note that spreads on Ireland are still very high relative to even a downgraded rating. Unless that is, the downgrade is by more than one notch.
Related links:
I, Ireland - FT Alphaville
