Credibility continues to slide

Greece’s credit rating was cut late yesterday by ratings agency Standard & Poor’s (S&P), which said the government may fail to tackle its rising debt burden. The rating was lowered by one level to BBB+, from A-, S&P said in a statement. Greece was put on «creditwatch negative,» signaling the company may reduce it again. «The downgrade reflects our opinion that the measures recently announced by the Greek authorities to reduce the high fiscal deficit are unlikely, on their own, to lead to a sustainable reduction in the public debt burden,» S&P credit analyst Marko Mrsnik in London said in the statement. S&P put Greece’s rating on watch for a downgrade on December 7. Fitch Ratings cut the credit to BBB+ the next day, driving yields on two-year government notes up by the most in more than 10 years. Promises by the Greek government to tackle the country’s fiscal probelms this week have done little to convince investors of the effectiveness of the measures. Finance Minister Giorgos Papaconstantinou said in London that the government will go a step further than previously announced and cut its 2010 budget deficit by 4 percentage points under new plans to reduce government operating costs and spending on public servants’ salaries. «The target is a 4 percentage point narrowing» of the budget gap to 8.7 percent of output, Papaconstantinou said in an interview with Bloomberg Television. That’s «more aggressive» than the government’s previous goal of reducing the shortfall to 9.1 percent, he said. Meanwhile, Greece yesterday privately placed 2 billion euros of floating rate notes (FRNs) offered to yield 250 basis points over Euribor, in an attempt to send markets a message that it can can still borrow to fill fiscal holes. Greece privately placed the five-year floating rate notes to four Greek banks and one foreign lender. Traders said overall sentiment toward Greece had not really been affected by the deal.

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