greece vs everybody graffitiAP Photo/Thanassis Stavrakis
S&P just downgraded Greece.
"We have lowered our long-term sovereign credit rating on Greece to 'CCC' from 'CCC+' to reflect our opinion that in the absence of an agreement between Greece and its official creditors, the Greek government will likely default on its commercial debt within the next 12 months," the credit-rating agency warned.
This comes as little surprise for euro-crisis watchers who've seen Greece hopelessly pull itself out of crushing debt as its economy suffers from a full-blown depression.
"As its liquidity position continues to deteriorate, Greece appears to be prioritizing other spending items over debt servicing," S&P explained. "In our view, without a turnaround in the trajectory of nominal GDP and deep public-sector reform, Greece’s debt is unsustainable."
S&P's assessment is bleak and its outlook is officially "negative," which means another rating downgrade could happen within a year.
But there is a bit of hope.
"The ratings could stabilize at the current level if we believe that a new financial support program will be agreed with policy conditions that satisfy both the political priorities in Greece and the creditor countries," S&P said. "Such a scenario could contribute to promoting political stability, tax compliance, and a gradual economic recovery."
Here's the full announcement from S&P:

Greece Long-Term Rating Lowered One Notch To 'CCC'; Outlook Negative

OVERVIEW

Greece delaying its payment to the International Monetary Fund (IMF) last
Friday, June 5, appears to demonstrate that the Greek government is
prioritizing pension and other domestic spending over its scheduled debt
service obligations.
We have lowered our long-term sovereign credit rating on Greece to 'CCC'
from 'CCC+' to reflect our opinion that in the absence of an agreement
between Greece and its official creditors, the Greek government will
likely default on its commercial debt within the next 12 months.
The outlook is negative.

RATING ACTION

On June 10, 2015, Standard & Poor's Ratings Services lowered its long-term
sovereign credit rating on the Hellenic Republic to 'CCC’ from 'CCC+’. The 'C'
short-term rating is unchanged, and the outlook is negative.
As defined in EU CRA Regulation 1060/2009 (EU CRA Regulation), the ratings on
Greece are subject to certain publication restrictions set out in Art 8a of
the EU CRA Regulation, including publication in accordance with a
pre-established calendar (see "Calendar Of 2015 EMEA Sovereign, Regional, And
Local Government Rating Publication Dates: First-Quarter Update," April 8,
2015). Under the EU CRA Regulation, deviations from the announced calendar are
allowed only in limited circumstances and must be accompanied by a detailed
explanation of the reasons for the deviation. In Greece's case, the deviation
was prompted by the decision of the central government to delay making a
scheduled debt service payment to the IMF that was due on June 5, 2015.

RATIONALE

As its liquidity position continues to deteriorate, Greece appears to be
prioritizing other spending items over debt servicing. In our view, without a
turnaround in the trajectory of nominal GDP and deep public-sector reform,
Greece’s debt is unsustainable. The downgrade reflects our view that in the
absence of an agreement with its official creditors, Greece will likely
default on its commercial debt within the next 12 months.
The European Central Bank (ECB) is currently providing financing to Greece’s
banks and economy at a level exceeding 60% of GDP. Continuous withdrawals of
deposits from Greek banks increase the possibility that the government could
impose capital controls to staunch further deposit outflows and issue a
parallel currency alongside the euro. The uncertainty around Greece’s
relations with its creditors and its broader political stability is weighing
on the economy; tax payment arrears rose materially in May, while the
government appears to be conserving cash by delaying payments to suppliers. A
weakening underlying fiscal position raises questions about the realism of any
agreement with Greece’s creditors on fiscal targets, as projections for tax
receipts and real and nominal GDP appear speculative. Even if an agreement
with official creditors were to be reached over the next fortnight, we do not
expect that such an agreement would cover Greece’s debt service requirements
beyond September.

OUTLOOK

The outlook is negative, given the risk of a further worsening of liquidity
for the sovereign, its banks, and the economy. Our understanding is that the
Greek government has decided to consolidate this month's €1.6 billion in debt
servicing owed to the IMF, an official creditor, into a single payment on June
30. If an agreement were reached between Greece and its official creditors
over the next week, we would still expect this to involve a temporary
three-month liquidity infusion. We do not consider it likely that there would
be any official debt relief or more substantial financing agreed to in the
next few days. In our view, this implies that confidence and investment
activity will remain weak and growth prospects muted.
The negative outlook means that we could lower the rating again within a year
if we perceive that the likelihood of a distressed exchange of Greece's
commercial debt will increase further. This could be the case if, for example,
we took the view that further official creditor disbursements would remain
elusive, resulting in the Greek government's inability to honor all its
financial obligations in full and in a timely manner.
The ratings could stabilize at the current level if we believe that a new
financial support program will be agreed with policy conditions that satisfy
both the political priorities in Greece and the creditor countries. Such a
scenario could contribute to promoting political stability, tax compliance,
and a gradual economic recovery.

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