S&P keeps Greek ratings on negative watch

ATHENS: Rating house Standard & Poor's on Wednesday said it was keeping debt-hit Greece's long-term credit rating on watch with negative implications ahead of a European debate on a permanent crisis fund.

"The Hellenic Republic's (Greece's) 'BB+' long-term sovereign credit rating remains on CreditWatch with negative implications, where it was initially placed on December 2, 2010," S&P said in a note.

"We continue to monitor the European discussion about the permanent crisis resolution mechanism as well as Greece's progress in adherence to the IMF/EU adjustment program," S&P said.

The negative outlook means the rating are at risk of being downgraded.

Greece has suffered repeated downgrades in recent months from S&P and fellow rating agencies Fitch and Moody's that made it impossible for the debt-hit country to raise fresh money on the open market.

S&P last downgraded Greece in April and put it on negative watch in December.

"We have kept the long-term rating on Greece on CreditWatch with negative implications because we remain uncertain about the ultimate nature, and impact, of the proposed key features of the permanent crisis resolution mechanism, the European Stability Mechanism (ESM), as these are yet to be decided by eurozone policymakers," said S&P credit analyst Marko Mrsnik.

"We expect that by late March 2011, European policymakers will have decided on the key features of the ESM and we expect the ESM will be operational by mid-2013," he added.

The agency said it would consider its position within the next two months and that another Greek downgrade would be probably up to two notches.

Credit agencies usually update their rating actions every three months.

Struggling with a massive public deficit and unable to generate growth, Greece was forced to appeal in May for a massive loan from the European Union and the International Monetary Fund, pledging an economic overhaul in return.

The painful austerity drive has brought widespread pay and pension cuts and thousands of layoffs while the economy is sinking deeper into recession.

So far, the government has managed to slash the public deficit by an unprecedented six percent of output and is still hoping to convince investors that it means business about cleaning up the economy.

Greece's ability to enforce the austerity cuts that have already caused a series of general strikes and protests is another factor determining a possible downgrade, S&P said.