It has dropped long and short-term sovereign credit ratings to CCC+/C from B-/B and says its outlook is negative.

Markets use sovereign ratings to work out the interest rate at which investors should lend to a country.

S&P says the economy has shrunk by 1% in six months despite the twin benefits of a lower oil price and a weak euro.

It says: "Greece's solvency hinges increasingly on favourable business, financial, and economic conditions... In our view, these conditions have worsened."

It says the government finances, which appeared to be improving slightly last year, have been dented by weaker economic activity and rising arrears on taxes.

Time running out

Since the end of November 2014, Greek banks have lost about 14% of their deposit base to customer withdrawals and deposit outflows have continued.

The conditions have been made worse by the uncertainty over the negotiations between the new Greek government and its main creditors, the International Monetary Fund, the European Commission and the European Central Bank.

S&P says that economic prospects could deteriorate further unless Greece reaches a deal over the next €7.2bn tranche of its bailout loan.

But time is running out. The ratings agency says: "If the stalemate between Greece and its official lenders is not resolved before the middle of May, then there might not be enough time for the Greek parliament to enact whatever conditions are attached to a revised lending program."

Source: BBC