Standard & Poor's has cut Greece's credit rating by three notches to CCC, the lowest rating of any sovereign nation in the world, as European finance ministers prepare to discuss a new aid package for the country.
"The downgrade reflects our view that there is a significantly higher likelihood of one or more defaults, as defined by our criteria relating to full and timely payment, linked to efforts by official creditors to close an emerging financing gap in Greece," the US ratings agency said.
The agency said it believed that Greece's recession "could well persist into 2012 and thus may further erode internal political support for the revised EU/IMF programme".
Greece responded by accusing Standard & Poor's of ignoring reform efforts in Athens and European Union talks on debt aid.
Al Jazeera's Alan Fisher, reporting from Athens, says Greek's debt crisis is akin to a long horror programme. They had received a bail-out just over a year ago but one year later no one wants to talk about the D-word in the corridors of power. That word is default.
"That's simply because Greece can't get on top of its problems. The recession has bit further and deeper than anyone expected. Greece's deficit has actually grown. It's now at $502 billion - that's about 150 per cent of its GDP," he said.
European ministers are due to meet on Tuesday to discuss a new aid package that could call on private holders of Greek debt to accept delayed payment.
The ratings cut came days after Greece's Socialist government unveiled a new austerity programme aiming to save around $4bn in new taxes and spending cuts by 2015.
The cash-strapped country is also planning to sell $1.79bn of treasury bills.
But the new measures have angered labour unions, which have called a general strike for Wednesday.
The walkout is expected to stop all train and ferry services, close schools and public services and leave hospitals operating with emergency staff.
Protesters, who have been demonstrating peacefully outside parliament in Athens for the past three weeks, also say they will try to blockade the building, while unions are planning protest marches through the city centre.
The downgrades by Standard & Poor's and other agencies have made it impossible for Greece to raise fresh loans on international markets as it struggles to fix its economy.
The Moody's agency demoted Greek bonds to Caa1 on June 1, just days before the end of an audit of Greek finances by the EU, the International Monetary Fund and the European Central Bank.
Source: Al Jazeera and agencies