Greece downgraded further into ‘junk’ as black hole in public finances widens

Standard & Poor’s slashes sovereign bonds as Athens’ budget surplus shrinks by more than two-thirds.

Greece’s sovereign debt rating has been slashed further into “junk” territory as the true extent of the country’s financial woes were laid bare on Wednesday.

Figures from Athens’ finance ministry revealed the economy has slipped further into the red following the election of its Leftist government.

Greece’s primary budget surplus, which excludes its debt interest payments, shrunk to just €1bn during January and February, compared to €3.17bn over the same period in 2014.

Separate data from the country’s official statistics authority also showed a gaping hole in the public finances, with the budget deficit stooping to 3.5pc of GDP in 2014, while the primary budget surplus was only 0.4pc.

Continued uncertainty around Greece’s membership of the eurozone saw Standard & Poor’s downgrade the sovereign to CCC+ from B- with a “negative outlook”, warning that “without deep economic reform or further relief, we expect Greece’s debt and other financial commitments will be unsustainable.”

The move follows similar action from fellow rating’s agency Fitch, who slashed their bond rating last month.
Yet despite evidence the coffers are quickly running dry, Athens’ Leftist government still aims to hit a surplus target of 1.5pc of its GDP this year, as it seeks to implement a series of revenue raising measures.
The task will be made much harder, as following Syriza’s election in late January, tax revenues have collapsed and capital has fled the country’s banks.
S&P now calculates the economy has already contracted by 1pc in the last six months, making ambitious surplus targets a near impossibility. The agency expects GDP to shrink by 1.5pc in 2015, a severe reversal from the 1pc growth it predicted only a month ago.
Adding to its financial burden, Greece’s public debt has also hit an eye-watering 177pc of GDP in 2014 or €317bn, according to the Hellenic Statistical Authority.
The debt pile has swollen from 154pc of economic output in 2012, as the economy has undergone severe growth-retarding austerity in order to remain eligible for its €240bn international bail-out.
Slovakia’s finance minister Peter Kazimir warned the debt-stricken economy was now getting “closer to the abyss”.
Speaking ahead of a meeting of finance chiefs on April 24, Mr Kazimir said he was “sceptical” of a deal being reached by the end of the month.
• Three myths about Greece’s enormous debt mountain • Five charts that show what’s going on in the global economy
Eurozone creditors have insisted the government carries out further cuts to its wages and pensions, and raise cash through selling off its public assets.
The government however, has protested it will soon exhaust all its funds and be unable to continue paying its domestic bills if a release of cash is not arranged in the next few days.
But a spokesman for the German finance ministry dashed hopes of an alleviation on the stricken sovereign, saying there would be no smaller injection of bail-out money this month.
Friederike von Tiesenhausen repeated the full €7.2bn would only be released when creditors deemed Greece had sufficiently met its reform criteria.
His comments echoed the sentiment of Berlin’s finance minister Wolfgang Schaeuble, who dismissed the dangers of market contagion should Greece be the first country to break the sanctity of the monetary union.
“If you look at Greece it’s not a major part of the economy of the eurozone as a whole,” Mr Schaeuble said ahead of the IMF’s meeting in Washington.
“Most participants of financial markets are telling us that markets have already priced in whatever will happen. You can’t see any contagion.”
The controversial finance minister, who has been the subject of an official complaint from Athens over his conduct, added Greece needed to carry out radical reforms to stop becoming “a bottomless pit”.
Meanwhile, Greece’s struggling banks are being kept alive through emergency funds (ELA) from the European Central Bank. The ECB has been forced to hike the limits on this cash on a weekly basis as capital has fled the country. A further €800m was drip-fed to banks on Tuesday.
The provision of the vital life support has seen Eurosystem funding for Greece top €107bn.
Mario Draghi, speaking at his monthly press conference on Wednesday, said ELA would continue as long as Greece’s banks remained solvent.
Greece has received no emergency cash since August 2014 and faces a €2.5bn IMF loan bill over May and June.
Despite the stalemate, the IMF forecasts the economy will grow by an ambitious 2.5pc in 2015, followed by 3.7pc in 2016.


 Source:
 The Telegraph – By Mehreen Khan