International credit agency S&P affirmed the debt-ridden country's BBB+ rating but warned Greece was still at risk of a rating cut within the next 18-24 months if it failed to implement its deficit cutting plan.
"We view the government's fiscal consolidation programme as supportive of the ratings at their current level, hence our rating affirmation," Standard & Poor's credit analyst Marko Mrsnik said in a statement.
"But if there are deviations which are not addressed [...] that would clearly put downward pressure on the rating," he told Reuters. Risks still existed, he said, adding that pension and healthcare reforms were among the key areas the firm would be monitoring.
S&P removed Greece from a negative credit watch, which implied the possibility of a near term cut, but put it on negative outlook, meaning a rating cut was still possible within 18 to 24 months. It had said last month it might cut the rating by up to two notches.
"Despite the new measures, we think it will be difficult for Greece to comply fully with its planned consolidation path, reducing its deficit to 5.6% of gross domestic product in 2011 and 2.8% of GDP in 2012, if it does not implement additional measures in the coming years," S&P said in the statement.
Greek Deputy Finance Minister Philippos Sachinidis welcomed S&P's statement, saying the government expected other rating agencies to follow. "It's a positive development, it confirms that Greece has the political will to deal with the country's fiscal problem," he told Reuters.
S&P's BBB+ rating of Greece is three notches away from losing investment-grade rating.
Greece's debt was downgraded by the three major rating agencies at the end of last year after it shocked markets and EU member states in October by revealing that the budget deficit would reach 12.7% in 2009, twice a previous forecast.
Greece has been hammered on markets since, in a crisis that has shaken the euro zone. The yield that investors require to hold benchmark 10-year Greek government bonds fell sharply yesterday after S&P's move.
Greece unveiled earlier this month extra austerity measures to knock its deficit to 8.7% of GDP this year, including cuts in public sector pay and tax rises.
This will bring total budgetary efforts for 2010 to 16 billion euros, or 6.9% of 2010 GDP, S&P said, citing the government's estimates.
"We view the government's total package of measures as appropriate to achieve its 2010 fiscal target, given the deterioration in the country's growth prospects," S&P said. The agency said it expects the recession to continue, with real GDP contracting by 4% this year.
S&P also removed Greece's main banks from rating watch negative and affirmed their ratings but said all outlooks were negative.
The euro extended gains against the US dollar on S&P's announcement, rising to a session high of $1.3771 from 1.3740 just prior to the announcement.
(EurActiv with Reuters.)
