By Michael Calia
Standard & Poor's Ratings Services placed its ratings on
Greece's sovereign debt on watch for downgrade on the heels of the
Greek national elections earlier this week that elevated the
leftist Syriza party to power.
The action follows a move earlier this month by Fitch Ratings,
which changed its outlook on Greece's ratings to negative.
"The CreditWatch placement reflects our view that some of the
economic and budgetary policies advocated by the newly elected
Greek government, led by the left-wing Syriza party, are
incompatible with the policy framework agreed between the previous
government and official creditors, " S&P said in a news
release.
"In our opinion, if the new Greek government fails to agree with
official creditors on further financial support, this would further
weaken Greece's creditworthiness."
S&P also cited the country's weak gross domestic product
growth as a "pronounced risk" to its debt sustainability.
The firm, calling the country's recovery "gradual but weak," had
increased its rating on Greece to B from B-minus in September,
while assigning it a stable outlook. At the time, S&P cited
strong demand for Greek bonds, as well as progress from the
government's finance ministry in achieving budget surpluses.
On Wednesday, S&P warned that it could lower Greece's
ratings if negotiations with creditors the European Union, the
European Central Bank and the International Monetary Bank fail.
The firm's concerns were echoed by other market observers.
RBS macro credit strategist Alberto Gallo said that he thinks
the country's negotiations with creditors are "likely to become
more confrontational." Yet, he said there could be ways forward to
break any potential stalemates.
"We think in the end the best solution for both parties is a
renegotiation of terms, not only maturities, but linking debt
payment to growth targets," Mr. Gallo said. "This would avoid moral
hazard like in a straight haircut, but also make payment more
realistic."
--Chiara Albanese contributed to this article.
Write to Michael Calia at michael.calia@wsj.com