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S&P sends early warning shot to Greece's Syriza

[LONDON] Standard and Poor's sent an early warning shot to Greece's new government on Monday, saying it could downgrade its sovereign credit rating even before its next planned review date in mid-March if things go badly.

Greece's Syriza party romped to victory in elections on Sunday and its leader Alexis Tsipras has agreed with the small Independent Greeks right-wing party to form a new hardline, anti-bailout coalition.

Tsipras has promised to end budget cuts and tax rises that sent unemployment soaring and impoverished millions.

S&P only upgraded Greece in September but Frank Gill, the rating agency's Senior Director of European Sovereign Ratings, said the uncertainty of a showdown over its debts with the rest of the eurozone risked snuffing out its recovery.

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"Syriza has been elected on a promise to restructure the sovereign debt, most of which is official, so the question is what kind of debt relief are they willing to accept and what are other EU states prepared to agree to," Mr Gill told Reuters.

"Our next scheduled date to review Greece's rating is March 13th. However ... we can deviate from the date if we feel something exceptional has occurred which has a very important bearing on the creditworthiness of the state."

Negotiations with the rest of the eurozone and the International Monetary Fund will now hot up for Greece.

As well as about 10 billion euros of debt payments it has to cover this summer, its banks also rely heavily on cheap funding and special exceptions from the European Central Bank.

Greek data so far suggests fiscal performance is deteriorating, Mr Gill said.

"What does it mean for GDP and domestic demand? Again the ... data suggests not good," he added. "What does it mean for financial stability, again unfortunately not good because you are seeing deposit withdrawals and you see the Bank of Greece stepping in and providing emergency liquidity assistance (to Greek banks)."

Greece's debt compared with the size of its economy is by far the biggest in Europe at over 170 per cent, although it has a longer than average maturity profile compared with countries like Italy and Spain.

However, with Greece unable to tap the markets because of high borrowing costs and the dependency of its banks on the ECB, Syriza may find it has limited leverage with its creditors.

"The reality is in order to make payments on its outstanding official and commercial debt, Greece needs additional official lending given that it does not have full access to commercial markets," said Mr Gill. "We are really looking at what this means for what had been looking like a recovery in the Greek economy and for relatively positive fiscal performance up until late October, and what that means is revisiting our macro projections."