S&P warns of political risks

S&P warns of political risks

Standard & Poor’s has discerned the possibility of fresh political instability in Greece in 2016, suggesting the country could default on its obligations next year.

S&P analyst Frank Gill argued in a report published on Wednesday that the Greek government is fully dependent on favorable business, financial and funding conditions if it is to meet its state debt repayments in the next 12 months.

He added that Athens’s commitment to implement unpopular reforms such as changes to the social security system, reducing various benefits, the additional cuts to expenditure and the privatizations increase the chances of a new round of political uncertainty at the start of next year, as the latest review of the program has been delayed and postponed to January-February 2016. This, he noted, could raise the risk of the program not being implemented and lead to a renewal of the default risks.

Gill, who is the director of European Sovereign Ratings at S&P, conceded that a payment halt is a more remote possibility than in June 2015, but remains a possibility nonetheless.

He also estimated that the implementation of the terms and conditions of the program is crucial for the survival of Greek banks, the stabilization of the economy and the return of trust. He added that Greece will continue to refinance its short-term debt via the issue of treasury bills totaling 15 billion euros.

Despite the concerns he voiced, Gill wrote in his analysis that the Greek government would not put the credit sector and bank deposits at risk. This is why he expects Athens to meet its obligations as defined in the bailout program. That would prevent a new bankruptcy, particularly in case a new debt lightening is granted. The analyst believes that a new settlement of Greek arrears will likely be discussed in the context of the first review of the new Greek program early next year.

S&P has scheduled its next assessment of the Greek debt for January 22 and currently grades the Greek economy at CCC+.

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