Is Standard & Poor flogging a dead horse?

The rating agency downgraded Greece’s outlook to negative, as the country’s economic situation worsened and it delayed the implementation of budgetary consolidation measures.

It may be noted that in March, Moody’s Corporation (NYSE:MCO) downgraded Greece’s credit rating to C, the lowest possible level. C-rated bonds are known to be the lowest rated class and are typically in default, with little likelihood for repayment of interest or principal.

Given the writing was already on the wall, what is S&P’s latest downgrade likely to achieve?

The agency justifies the action thus in their statement: “Following delays in implementing budgetary consolidation measures and a worsening Greek economy, we believe Greece is likely to require additional financing for 2012 under the EU/International Monetary Fund (IMF) program. We are revising the outlook on the long-term ratings on Greece to negative, reflecting the possibility of a downgrade, if Greece fails to secure the next disbursement of the EU/IMF Program.”

S&P also said: “We see the likelihood of shortfalls, owing to election-related delays in the implementation of budgetary consolidation measures for the current year, as well as the worsening trajectory of the Greek economy.”

Representatives of the ‘troika’ concluded an examination of Greece’s situation Sunday, and are likely to return in September for another round to ascertain the country’s eligibility to draw on further rescue bailouts. Greece’s newly-elected politicians are trying to work out ways and means of complying with the budget cuts to qualify for the aid.

It appears that The McGraw-Hill Companies, Inc. (NYSE:MHP)’s S&P is already convinced that Greece may not be able to come through on the budget austerity measures and may not receive further aid tranches. Reportedly, the IMF has been pushing to have Greece’s target of debt ratio reduced to 100 percent of GDP by 2020, but Olivier Bailly, senior European Commission spokesman for the economy, said the current target of 120 percent is already “an ambitious target for Greece, and we stick to it.”

It may be noted that ratings downgrades have often had quite the opposite impact on the affected country’s debt instruments. According to Bloomberg, yields on government bonds fall when they should rise, judging by the rating action – a result of statistical analysis of 314 rating changes dating from the 1970s.

In that case, the S&P downgrade for Greece may not be highly significant.