LONDON, England

THE Greek government won key backing from the Standard & Poor’s credit rating agency for its efforts to dig out of a debt crisis that has shaken up the entire eurozone.

Standard & Poor’s said yesterday it was taking Greece off so-called credit watch. That means the agency is not thinking about downgrading the country’s credit rating for now — to the relief of the Greek government as it tries to plug its deficit by tapping the international bond markets for cash.

The agency said the Greek government’s package of measures was “appropriate” to achieve its target of reducing the budget deficit by a huge four percentage points this year from 12.7 per cent of the country’s national income. However, it slapped a longer-term negative outlook on Greece as it cautioned about the government’s ability to sustain its reform momentum past this year.

For now though, Standard & Poor’s has kept the country’s BBB+ credit rating unchanged.

“We view the government’s fiscal consolidation programme as supportive of the ratings at their current level, hence our rating affirmation,” said Standard & Poor’s credit analyst Marko Mrsnik.

Of the three main credit rating agencies, Standard & Poor’s had the lowest rating on Greece. The removal from credit watch is a hopeful sign that the Greek debt crisis could be easing.

The markets certainly breathed a sigh of relief that Greece was not facing an imminent downgrade, which could have reignited market fears that the country may default on its debts without massive assistance from its partners in the eurozone. A vague promise of support that could include loans made by eurozone finance ministers Monday evening got a modestly positive response and helped shore up investor sentiment.

Following S&P’s statement, the euro shot up to a session high against the dollar. By mid afternoon London time, the euro was 0.5 per cent higher at US$1.3737. Stocks also rallied.

Standard & Poor’s rating affirmation on Greece comes in the wake of the Greek government’s latest batch of spending cuts and tax increases.

The measures were partly designed to show the international investing community that the country has a concrete strategy to deal with its debts. The additional measures are designed to reduce the deficit by a further ¤4.8 billion, taking the total reduction to a massive ¤16 billion.

Greece needs the support of bond investors, as it has to roll over around ¤55 billion of debt this year, including ¤20 billion in the next couple of months. It wants to be able to tap the bond markets for cash at cheaper rates — another downgrade from Standard & Poor’s would have made it even more expensive.

Greece has been able to sell bonds but at high interest rates that could eventually make fixing its deficit harder if they do not come down.