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Greece's economic outlook worsens after downgrade

Athens has sunk deeper into junk territory after ratings agency S&P once again cut its credit rating. Pressure is on to strike a deal with its international creditors, but time's running out and patience wearing thin.

Standard & Poor's (S&P) added to Greece's economic woes on Wednesday when it downgraded the debt-ridden country's credit rating from B- to CCC+, with a negative outlook.

"Without deep economic reform or further relief, we expect Greece's debt and other financial commitments will be unsustainable," the rating agency said in a statement explaining the cut, which sends the country further into junk territory.

The new rating signals to borrowers that the country is vulnerable to a default.

The downgrade "reflects our view that Greece's solvency hinges increasingly on favourable business, financial, and economic conditions," said S&P. The agency also warned that there was a vital deadline looming.

"In our view, these conditions have worsened due to the uncertainty stemming from the prolonged negotiations between the almost three-month-old Greek government and its official creditors."

The agency added that it believed the uncertainty may be to blame for the one-percent contraction of the national economy over the past six months.

Time's running out

The downgrade increases pressure on Prime Minister Alexis Tsipras to negotiate a deal with Greece's international creditors - the European Central Bank, the European Commission and the International Monetary Fund - to extend its financial lifeline.

"In our opinion, economic prospects could deteriorate further unless talks between Greece and its creditors conclude soon," said S&P.

The country's coffers are running dry fast, with experts estimating that Athens could default this month unless a compromise is reached, when it meets with eurozone finance ministers in Riga, Latvia, on April 24.

Symbolbild Griechenland Deutschland Varoufakis Schäuble

Germany's hawkish Finance Minister Schäuble (left) is one of the Greek government's staunchest critics

Unlocking Schäuble

But paymaster Germany remains skeptical that the Greek government will produce a list of reforms that is detailed enough to satisfy its lenders and unlock the last tranche, worth 7.2 billion euros ($7.6 billion), of the 240-billion-euro bailout it was accorded in 2010.

"No one has a clue how we can reach agreement on an ambitious program," German Finance Minister Wolfgang Schäuble told the Council on Foreign Relations during a trip to New York on Wednesday, adding that no one expected a deal, neither in Riga, nor in the coming weeks.

Schäuble squarely placed the blame at the feet of Greece's leftist-led government, which came to power in January, saying it had "destroyed" all of the country's economic progress made since 2011.

No Plan B?

Still, the German Finance Ministry rejected reports that Berlin was preparing for a Greek exit, a so-called "Grexit," from the eurozone.

"I can only shake my head [at such rumors]," said a spokeswoman for Schäuble in Berlin on Wednesday. "The only thing the German government is working on is strengthening and keeping together the eurozone."

Watch video 04:57

Greece - In Search of Aid

But she added that paying out new aid to Greece this month was unrealistic.

By now it is no secret that many EU leaders are running out of patience with the new Greek Prime Minister. Behind closed doors in Brussels, European Commission President Jean-Claude Juncker, one of the key mediators in the increasingly tense standoff, told Commission members that there had been no progress for days, according to one EU official.

Even then, the source said, Juncker had rejected talks of contingency planning for a possible exit.

"A Grexit is a taboo topic for Juncker," the official said.

For now, S&P appears optimistic that this taboo won't be broken. Despite the rising risk of a default, "a Greek exit from the eurozone is not our base-case scenario," the agency said.

pad/bk (AP, AFP, dpa, Reuters)

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