WASHINGTON, D.C.: Standard & Poor’s downgraded Greece’s credit rating deeper into junk territory on Monday (Tuesday in Manila), saying the government’s call for a referendum on creditor proposals brought it closer to default.
“We interpret Greece’s decision to hold a referendum on official creditors’ loan proposals as a further indication that the Tsipras government will prioritize domestic politics over financial and economic stability, commercial debt payments, and eurozone membership,” said S&P.
It cut Greece’s already deeply junk-level rating to “CCC-” from “CCC.”
The Greek government announced on Saturday that it would hold a referendum on July 5 on proposals from its official creditors—the European Commission, the European Central Bank and the International Monetary Fund (IMF)—effectively breaking off negotiations to obtain another 7.2 billion euros ($8.1 billion) in bailout funds.
S&P said that was a sign that Athens would likely miss its payment obligations due the same day, June 30, including the 1.5 billion euros ($1.7 billion) to the IMF.
A missed payment to the IMF, or to the ECB, would not be a commercial default, the ratings firm noted.
However, given the country’s dire finances and absent unforeseeable improvements in the situation, “a commercial default is inevitable within the next six months,” the ratings firm said.
In a one-notch rating downgrade earlier in June, S&P saw the likelihood of a commercial default within the next 12 months.
According to S&P estimates, about 39 billion euros of Greece’s medium- and long-term debt is commercial, while all of the remaining 261 billion euros in debt, excluding 15 billion euros in Treasury bills, is owed to official creditors.
With the crisis building, Greece on Monday ordered its banks shuttered until July 6, and placed controls on capital to stanch market panic.
But S&P said that will further drag down economic growth, predicting a 3.0 percent contraction this year after 0.8 percent growth in 2014.
It also made more likely the country’s leaving the eurozone.
“Given that the government appears willing to accept the consequences on its banking sector and economy from the failure to reach an agreement, we now see a 50 percent likelihood of Greece eventually exiting the eurozone,” it said.