Rating agency downgrades Greek credit even further

Greece's credit grade is already in junk status but on April 15 rating agency Standard and Poor downgraded the status of Greek credit even further.

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Standard and Poor downgraded Greece from a B- rating to CCC+ and even that was with a negative outlook due to "further worsening in liquidity for the sovereign, the banks, and the economy." The agency also warned that Greece's financial commitments would be unsustainable without "deep economic reform or further relief." The rating agency had raised Greek's ratings last year as the economy showed signs of recovery.

There have been constant withdrawals from Greek banks and the Greek stock market declined by almost two percent on Wednesday. Standard and Poor said of the business, financial, and economic conditions in Greece:"In our view, these conditions have worsened due to the uncertainty stemming from the prolonged negotiations between the almost three-month-old Greek government and its official creditors."

New data released on Wednesday showed that Greece fell far short of budget reduction targets in 2014. The predicted deficit for Greece had been 0.8 per cent but in actuality it was 3.5 per cent of GDP. After the cost of interest payments on debt is taken out, the surplus was a mere 0.4 per cent rather than the 2 per cent predicted.

The rating agency estimated that the Greek economy was again contracting over the last six months. The agency also said that the economic situation could worsen if talks between Greece and its creditors do not result in an agreement soon. Greek authorities hope that there will be an agreement when the Eurogroup of finance ministers meet in Riga, Latvia on April 24. If Greece fails to come to an agreement then it could very well run out of cash within a period of weeks without new funds.

European Commission Vice President, Valdis Dombrovskis, who is responsible for the talks said that chances of striking a deal at the upcoming meeting on April 24 are low. He said that the group is more likely to assess progress with a decision on whether to release funds coming at the next meeting of Eurozone Finance Ministers on May 11. A main sticking point is that so far Greece has not agreed to pension and labor market reforms demanded by creditors. Unless more cash is released Greece could run out of funds by May 1. Dombrovskis said of the talks:"Currently, there is some progress but unfortunately those negotiations were in for a slow start, time is short and there is a lot of ground to be covered.”Euclid Tsakalotos, deputy minister for economic relations, claimed that Greece aimed to conclude talks before the April 24th meeting so that a decision could be made tjen:“We are working very hard on the good scenario, and by then, Greece needs to have had some movement on its funding, on the money that is owed to it by the International Monetary Fund (IMF) and the other institutions. We are doing our best to reach a new deal for what we think is good not just for the average Greek but for the average European,”

Greece denies that it is making plans to default on debt payments

As has happened often during negotiations with its creditors, mixed and contradictory messages are coming from the Greek Syriza government.

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The Financial Post reports that the Greek government is preparing to default on its debt if it can't reach a deal with the Eurogroup creditors by the end of this month. One government official claimed:“We have come to the end of the road . . . If the Europeans won’t release bailout cash, there is no alternative [to a default].” There are 2.5 billion euros of payments due to the International Monetary Fund in May and June. The government may be using the threat of default as leverage to receive a better deal from creditors but there is little sign that it is working.

Negotiators for the creditors appear to be exasperated by the Greek government's lack of movement towards presenting and implementing a set of acceptable reforms. There is no sign that any funds from the extended bailout loan will be released until that happens. European Commission Vice President Valdis Dombrovskis said that the mood between the Greek government and negotiators had been tense:"Talks are very complicated. Time is running out. Greece should come up with an ambitious reform list in line with its bailout program and also start to implement it."The Euro Working Group of deputy finance ministers gave the Greek government a deadline of six working days to present a revised economic reform plan. The next meeting of the eurozone finance minister is set for April 24. Dombrovskis claimed that the finance ministers had done their best to be flexible but Greece had to do more.

Whether the Greek negotiators are using the threat of default as a negotiating tactic or not, the depletion of Greek government coffers and the need for more cash is a reality as payment of pensions and salaries become due as well as loan payments. Investors are unsure whether there will be a forced exit of Greece from the eurozone or even perhaps an election called again if no agreement is reached.

Syriza has not only passed legislation on poverty and home foreclosures condemned by its creditors but also has steadfastly refused to address what the Financial Times calls "politically sensitive structural economic reforms":

These included an overhaul of the pension system, including cuts in the payments received by Greek pensioners, and measures to permit mass dismissals by private sector employers.

In spite of promising to meet Greece's international debt obligations, the finance minister Yanis Varoufakis said that the government's top priority is its domestic commitments and this included an obligation to continue paying pensions. Surely, it should be evident by now that Greece cannot do what its creditors demand while also meeting its "domestic commitments."

Nevertheless a Greek government spokesperson denies that it is preparing a default if it cannot reach an agreement with creditors on bailout terms or that it might call an early election afterwards. The spokesperson said that negotiations were proceeding swiftly towards a solution. A solution is needed since the Greek government needs 2.4 billion euros to pay salaries and pensions this month. On the first of May it needs to pay the IMF 203 million euros and another 770 million euros on May 12. Greek prime minister Alexis Tsipras maintains that Greece will simply be unable to service its debt without funds from the European Union.