Standard and Poor's slashed its rating for Greece on Monday, evoking a rising probability of a debt restructuring, as sources said the EU is mulling providing more help to the struggling eurozone member.

The S&P ratings downgrade came amid increasing concern in the markets that despite its 110-billion-euro ($160 billion) bailout by the IMF and EU last year Greece will not be able to keep on top of it debt that is more than a year-and-a-half of its entire economic output.

Athens immediately hit back at S&P, saying its downgrade "placed the agency's reliability in doubt".

The developments move sent the yield, or return on investment for investors, on 10-year-bonds even higher, to 15.483 percent versus 15.350 percent on Friday.

S&P on Monday cut its long-term rating of Greece by two notches to B, even further away from investment grade status.

"The downgrade reflects our view of increasing sentiment among Greece's key eurozone official creditors to extend the debt payment maturities of their 80 billion euros of bilateral loans pooled by the European Commission," the credit rating agency said.

"As part of such an extension, we believe the eurozone creditor governments would likely seek 'comparability of treatment' from commercial creditors in the form of their similarly extending bond and loan maturities."

"As part of such an extension, we believe the eurozone creditor governments would likely seek 'comparability of treatment' from commercial creditors in the form of their similarly extending bond and loan maturities."

That would mean that private investors would receive less return, possibly a lot less, than they had expected.

S&P estimated that if an eventual restructuring involved only an extension of the duration of repayments, without cutting the capital amount to be repaid, bondholders could expect to recover more than 50 percent of what they had initially expected, in terms of capital and interest.

Debt markets have become increasingly jittery as Greece has failed to meet targets to cut its deficits as the austerity measures it has introduced has sent the economy into a tailspin.

Under its debt rescue plan agreed a year ago, it had been intended that Greece would return progressively to financial markets in 2012 to borrow the money it needs, but the interest rates demanded on the market are currently prohibitively high and make this outlook appear doubtful.

"Markets now seem more certain than ever that debt rescheduling is inevitable in the eurozone periphery," said analysts at Bank of America Merrill Lynch.

However, leading eurozone finance ministers ruled out such a rescheduling at an informal meeting on Friday but are looking at whether to increase help to Athens, a European source told AFP.

The meeting had looked in detail at "the need or not to add financing, and the different options," the source said. "The question of rescheduling the debt was raised but ruled out," the source said Monday.

S&P cast doubt over whether a mere rescheduling would succeed in helping Athens get on top of its debt of 340 billion euros.

It said its own "projections" suggested that "principal (capital) reductions of 50 percent or more could eventually be required to restore Greece's debt burden to a sustainable level".

While European officials and Greece are still saying neither a rescheduling nor a restructuring is in the cards, there is a growing realisation that further measures are needed.

"We think that Greece does need a further adjustment programme," Luxembourg Prime Minister Jean-Claude Juncker, Europe's longest-serving leader and chair of the Eurogroup of finance ministers, said on Saturday.

His spokesman Guy Schueller put the emphasis on "additional measures" in Athens, rather than new EU money being pumped in, although he did not rule out "eventual adjustments of conditions" attached to the existing bailout.

Juncker said details would be discussed among eurozone and EU finance leaders in Brussels on May 16 and 17.

EU and IMF officials are to begin this week a review of Greece's progress before deciding whether to recommend it receive a 12-billion-euro instalment under its bailout loan.

"European officials have bowed to the inevitable and accepted the need to extend Greece's bail-out package," said Ben May of Capital Economics.

"But we still think that it is inevitable that Greece will have to restructure its debts at some point in the future," he added.

channelnewsasia.com