• Standard & Poor's gives country a B rating
• Agency blames missed deficit target
• Greek finance ministry says move based on 'rumour'
Standard & Poor's has again infuriated Greece by cutting the credit rating of the debt-laden country – from BB- to B – and warning that it could be slashed even further.
The agency issued the downgrade amid speculation that the €110bn (£97bn) International Monetary Fund and European Union bailout is being renegotiated, only a year after being agreed, and its expectation that investors face losses on their bond holdings.
Greece was quick to issue a statement saying that the downgrade "comes at a time when there have been no new negative developments or decisions since the last rating action by the agency just over a month ago and therefore is not justified".
In March, S&P had cut the rating to BB- and warned the country faced another downgrade if the 2010 budget or 2011 fiscal performance fell below expectations. "In fact, Greece missed its 2010 fiscal target (a budget deficit of 10.5% of GDP versus a 9.6% target) and achieving the 2011 target is uncertain," S&P said.
"We believe that many of Greece's eurozone official creditors have concluded that the ensuing higher projected borrowing requirements have reduced the likelihood that the Greek government will be able to return to commercial markets for medium- and long-term issuance later this year or early next year as originally planned. Accordingly, they may see a restructuring of official and commercial debt as the best way forward," the agency said.
It indicated that half of Greece's debts could eventually be written off in order "to restore Greece's debt burden to a sustainable level".
The rating could be downgraded again, the agency warned, but said that it could be maintained at its current level "if Greece's eurozone partners exempt commercial creditors from comparability of treatment while extending maturities on their official debt".
When the agency cut Greece's rating to BB- in March, prime minister George Papandreou said the country was being downgraded not because of its policies but because of the EU's handling of the crisis. He later said that ratings agencies were "seeking to shape our destiny and determine the future of our children".
After the latest downgrade, Greece's ministry of finance said: "Credit rating decisions should be based on objective data, policymakers' announcements and realistic assessments of the conditions facing an economy. Not on market rumours and press reports. When such decisions are based simply on rumours, their validity is seriously cast in doubt."
Secret talks were held Luxembourg on Friday between Athens and some of the key EU players and led to the conclusion that Greece will not be able to meet the terms of last year's rescue by returning to the financial markets to issue more bonds. Its current rate of borrowing is regarded as prohibitively high, at 15.9%.
Greece has never had a top-notch AAA rating but has been downgraded or warned of a downgrade eight times since January 2009, when it had an A rating. It was the first eurozone country to have its debt rating cut to junk a year ago.