S&P Prepares To Cut Greece Rating For Second Time In One Year, Here Comes BBB+

Greece was placed on Creditwatch with Negative Implications by S&P, noting that the country's A- rating may be cut within 2 months. Greece CDS has widened by 11 bps to 194 on the news, and Greece now accounts for 19.7% of all SovX risk currently. In its report S&P noted:

The ratings on Greece have been placed on CreditWatch negative to
reflect our view that the fiscal consolidation plans outlined by the new
government are unlikely to secure a sustained reduction in fiscal deficits and
the public debt burden.
Without further measures,
debt will reach 125 percent of gross domestic product next year,
the highest among the 16 countries using the euro, S&P said.

In a statement that likely means that no matter what happens, Europe will be forced to bail Greece out, Jean-Claude Trichet shared the following "wisdom":

Greece is facing a “very difficult” situation and needs
to take “courageous” decisions to counter the budget deficit,
European Central Bank President Jean-Claude Trichet told the
European Parliament in Brussels today.

As it stands, and as Dubai so handily highlighted, all the risk now exclusively at the sovereign domain. Bernanke has managed to achieve a situation where bailing out Goldman et al will likely be the reason for rolling sovereign defaults in the very near future. And if the Chairman thought he was unpopular with 80% of America demanding his immediate ouster, just wait until it becomes clear to various fringe countries that Uncle Ben's policies resulted in their own sovereign defaults. We can not wait.

More from S&P:

In the absence of further measures, we project that Greece's general government debt burden could reach 125% of GDP in 2010--the largest among Eurozone sovereigns--and remain at that level, or move higher, over the medium term.

To its credit, the PASOK-led government of Prime Minister Georgios Papandreou has acknowledged the large shortfall in the 2009 budget inherited from the outgoing government, and announced reforms that could bring greater transparency to the public finances in the future. After taking office in October, it raised the estimate for this year's general government deficit to 12.7% of GDP, more than six percentage points higher than previous official projections. Also, the new government has outlined plans to establish
independent budget accounting and statistical offices to bring greater credibility to the budget making and budget execution process. These steps are important, in our view, given that the usefulness of the previous fiscal management framework had been undermined by repeated misreporting of fiscal deficits by previous administrations. That said, it will take time for these new institutions to establish an effective track record.

We consider the new government's strategy for fiscal consolidation, however, to be more tentative. It has announced plans to cut the 2010 budget deficit by 3.6 percentage points of GDP (to 9.1% of GDP), some of which represent one-off measures. On the revenue side, property taxes, as well as income taxes on higher-earning individuals and large companies, are set to increase. On the spending side, a partial freeze on public sector wages and pensions has been targeted, together with a phase-out of public sector workers on short-term working contracts. We view these measures as unlikely by themselves to alter Greece's medium-term fiscal dynamics, given the high fiscal deficits and debt burden the government inherited but also, in our opinion, unfavorable demographics and weak economic growth prospects.

We expect to resolve the CreditWatch placement within the next two months, after we receive further information from the Greek authorities on their plans to counter intensifying economic and fiscal pressures. If we conclude that the government's strategy is aggressive enough to secure a significant and sustained decline in the public debt burden, the ratings could be affirmed. Conversely, we could downgrade the rating by one notch to 'BBB+' if we view the government's fiscal assumptions as unrealistic, particularly given the risk that the Greek economy may underperform many of its Eurozone peers over the medium term.

Comments

[bugs_]

Oh they will bash Ben while they
accept their bailout at his hands.
When the 80% of America sees him
do additional sovereign bailouts
(other than what he has already
done) it is likely that a tipping
point will have finally been
reached in the politics of this
"bailoutgate".

[Steak]

This reminds me of the I-35 bridge collapse.  This particular event is just another piece of eroded concrete falling into the river.  In this case like that bridge everything seems to hold together even in the face of very negative developments...until it doesn't hold any longer, and one had better hope they've long since cleared the bridge by the time that happens.

The cynic in me says that the downgrade will be cause for a market rally when the nervous leveraged dollar shorts see the sun come up the next day. 

[Cursive]

This is the see no problem, hear no problem, speak no problem market.  Hell, even i have become numb to bad news.  So, I think the Obama/Geithner/Bernanke strategy has worked well.

[Anonymous]

Interesting. Will se waht aunt Angie will do from now on since she thinx that "states do fail".Stil waiting on Italy,Ireland,the Baltics,Poland,Ukrine. Come to think about it,NBG is down by about %25 from its recent highs,so they realy didn't benefit from the bailout,unless their retirement funds loaded up on the stock at its lows. But,so are many other stocks,and the trillions just keeps on pouring in the hopes that retirement funds becomes whole in the near future.A common Nigerian famous scheme(if you send me $10 k, I will be ableto get my $100k out of the ban,and you will share with me %50 of the proceeds)

[msorense]

Didn't they say they were going to cut their ratings on broad swaths of CMBS of 2005-07 vintage back in April?  Did that ever happen?  Haven't seen or heard.  Pathetic f**kn market.

[Anonymous]

S&P, forever on top of breaking developments.

Next, their keen insight may spy some trouble in Ireland or Spain.

[carbonmutant]

Can Greece blackmail the EU?

If I go you go....

[Mr Shush]

So . . . just how much of the Eurozone would have to go under before the Germans actually couldn't bail it all out, even if they wanted to? Could they cope with an Italian sovereign default?

[tom a taxpayer]

I don't know, but it seems the young married couples (European Union) are in the midst of a stress test that could strain the bonds of matrimony.

[Zombie Investor]

Anyone know the dollar (or Euro) amount if Greece defaults?