Greece credit rating cut by S&P on 'likely default'

Taxi drivers protest in Athens
Image caption S&P said its a debt restructuring constituted a "selective default" under its methodology

Ratings agency Standard & Poor's has cut Greece's credit rating, saying that eurozone plans to restructure the country's debts would constitute a "selective default".

Under the plans, Greece would be given longer to repay its debts and private investors would take a hit.

S&P said it had cut Greece's rating to CC from CCC.

Earlier this week, Moody's rating agency also downgraded Greece, while Fitch has indicated it may follow suit.

S&P said that having studied the eurozone proposals for resolving the Greek debt crisis, which were agreed last week, it had concluded that the debt restructuring "would amount to a selective default under our ratings methodology".

"We view the proposed restructuring as a 'distressed exchange' because, based on public statements by European policymakers, it is likely to result in losses for commercial creditors."

Undermine confidence

The aid package agreed last week by eurozone leaders included 109bn euros ($156bn; £96bn) in new loans to Greece, various options to extend the country's repayment terms and reduce the amount it repays on existing loans, and voluntary private sector participation, so that banks share taxpayers' burden.

S&P said: "In our opinion, the terms of both the exchange and rollover options appear unfavourable to investors."

Citing the Institute of International Finance - a trade body representing global banks and other major lenders - the agency said the deal would cost private sector creditors about 20% of the value of the Greek debts they held.

Eurozone leaders were keen to reach an agreement that did not result in the credit ratings agencies declaring a default, which they feared could undermine confidence in both the eurozone economy and its banks.

France and the European Central Bank in particular argued against private sector involvement, but Germany insisted upon it.

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