Greece was downgraded to the lowest-rated country in the world by Standard & Poor’s, which said the nation is “increasingly likely” to face a debt restructuring and the first sovereign default in the euro area’s history, Bloomberg News reported.
S&P cut its rating on Greek debt three notches from B to CCC and said the country was likely to default on its debt at least once by 2013, BBC News said.
Although S&P doesn't rate every country, Greece is now graded below countries including Jamaica, Pakistan and Fiji, and below Argentina and Ecuador, which recently defaulted on their debt, according to the Wall Street Journal.
The downgrade comes at a difficult time for Greece, the New York Times said. The government is trying to persuade legislators to accept new and unpopular austerity measures, while Germany, the dominant economy in the 17-member euro zone, is proposing that private sector bondholders accept some form of a loss on Greek bonds as a condition for a rescue package for Greece that could be as much as $143 billion.
Germany's insistence on the participation of private sector bondholders would reduce the amount of new money that it and other official creditors would need to lend to Greece, according to the Wall Street Journal. But it would also mean that holders of existing bonds would be encouraged to accept delays in repayments of Greek government bonds that come due in the next few years. Most methods of achieving that would be viewed as a default under the rating agency's rules.
According to Reuters:
"In our view, any such transactions would likely be on terms less favorable than the debt being refinanced, which we, in turn, would view as a de facto default according to Standard & Poor's published criteria," the agency said.
Greece’s finance ministry said in a statement that the decision to downgrade its debt “ignores” the “intense consultations” to resolve the crisis that are taking place between officials at the European Commission, European Central Bank and International Monetary Fund, Bloomberg News reported.