Financial markets tumble after Fitch downgrades Greece's credit rating

[Pastor Dale Morgan]

*Perilous Times

Financial markets tumble after Fitch downgrades Greece's credit rating
*
� Greek debt marked down from A- to BBB+
� Fear for Eurozone push down single currency

* Helena Smith in Athens and Ashley Seager
* guardian.co.uk, Tuesday 8 December 2009 20.42 GMT


Newly elected socialist government in Greece is facing an economic storm
after its credit rating is downgraded. Photograph: Petros Giannakouris/AP

Financial markets around the world sold off after Greece's credit rating
was cut amid mounting concerns about its fiscal health.

European stock markets tumbled and the euro weakened sharply with
investors becoming increasingly worried about dragging debt problems
worldwide. The fallout also followed a ratings downgrade for six
companies in Dubai, reinforcing fears of a global debt crisis.

The Fitch rating agency cut Greece's long-term debt to BBB+ from A minus
. It marked the first time in 10 years that the country has seen its
rating pushed below an A grade. The agency cited: "The weak credibility
of fiscal institutions and the policy framework � exacerbated by
uncertainty over the prospects for a balanced and sustained economic
recovery." It said the medium-term outlook was negative.

The debt downgrade for Greece will concentrate Alistair Darling's mind
as puts the finishing touches to his pre-budget report. Darling has to
present credible policies for reducing Britain's budget deficit to head
off investors' fears about the UK's debt. Credit rating agency Moody's
warned yesterday that the UK faces "an inexorable deterioration of debt
affordability in the short term" due to a structural public deficit
running above 10% of GDP.

Moody's confirmed Britain's AAA credit rating, but placed it in the
middle of three categories within the band. The UK's "resilient" rating
means that it may "test the boundaries" of the AAA band, but displays
the capacity to rebound and reverse its debt problems.

The effect of the ratings cut was felt immediately in Greece in a week
where Athens has marked the first anniversary of the police shooting of
a teenager with riots and protests. Within minutes of the decision
becoming public knowledge, the Greek stock exchange began to tumble,
with shares falling by 6 %. Analysts voiced fears that the downgrade
might also encourage other major agencies, such as Moody's and Standard
& Poor's, to follow suit.

After the decision the euro slipped against the dollar and other major
currencies, highlighting anxiety over the possible repercussions it
could have for the eurozone if Greece defaulted on what has become the
most expensive debt in the EU.

European stock markets also took fright, with the pan-European
FTSEurofirst index slipping 1.5%, while in London the FTSE 100 shed
1.65% to close at 5223.13, down 87.53 points on the day.

The euro fell by 2% against the yen and by 0.6% against the dollar to
$1.472. The currency was also undermined by continuing worries about
Dubai and a huge fall in German industrial production.

James Hughes, at CMC Markets, said: "While you've got weak data coming
out and doubts about Greece and Dubai, you will get fickle markets ruled
by fear."

Greece has the highest debt ratio within the 16-member eurozone with the
finance minister, Giorgos Papaconstantinou, admitting that "the fiscal
situation is dramatic". Next year it is forecast to reach 124.9 % of
gross domestic product.

The downgrade came less than a day after Standard & Poor's put Greece's
debt under "negative" watch and warned of a downgrading if the country's
government did not tackle overspending quickly.

The head of the European Central Bank, Jean-Claude Trichet, appealed to
the prime minister, George Papandreou, to enact "courageous" measures.
"The situation in Greece is very difficult," Trichet told the European
parliament's economic committee. "This calls for very difficult, very
courageous but absolutely necessary measures."

Last week the country was formally put under EU supervision. The
administration, which revealed within weeks of assuming power in October
that the public deficit was 12.7% of GDP � more than four times the EU's
permitted level � has tried to limit the damage, reassuring Brussels and
investors that measures will be taken to shore up the economy.

Appearing on CNN, Papandreou rejected the prospect of Greece going
bankrupt, saying it was "a responsible country" and would not default on
its debt. The socialists have announced that they will curb the deficit
by cutting tax evasion and trimming public expenditure.

Attending an Ecofin meeting in Brussels last week, the Greek finance
minister appealed for a "suspension of disbelief" in the country's
ability to attain results through tough measures and structural reforms.
Athens, he said, would present the EU with a detailed plan in January
outlining in detail how it would work its way out of the economic debacle.

With Greece bracing for a winter of discontent, Papandreou has said that
he will invite political parties and social partners from across the
board "to face-to-face dialogue" to discuss the painful measures that
are now needed. "The changes required in the country are not the
exclusive task of our government but should be the outcome of a wider
political and social consensus," he said.

*
Six Dubai companies downgraded to junk status*

� Move follows government failure to honour Dubai World debts
� Downgraded companies include ports operator DP World


* Elena Moya
* guardian.co.uk, Tuesday 8 December 2009 20.38 GMT


A truck leaves DP World Jebel Ali Port in Dubai. The company was one of
six downgraded by Moody's credit ratings agency. Photograph: Steve
Crisp/Reuters

Credit woes extended to Dubai, where investors are still assessing
potential losses after Dubai World, a state-controlled investment
company, announced two weeks ago that one of its units wanted a halt in
debt payments. Moody's credit ratings agency downgraded six Dubai
government-related firms to junk status because of the lack of support
they would receive from the government in case of default. Creditors
were shocked when the Dubai government refused to stand behind Dubai
World or any of its subsidiaries and honour its debts in times of
trouble. Bonds issued by Nakheel, the beleaguered real estate unit, had
been trading at more than their face value as investors were willing to
pay a premium for what they perceived to be a de facto state guarantee.
But the withdrawal of public support has now put a question mark over
the creditworthiness of other government-related businesses. "This
rating action follows recent comments and statements from government
officials, which cause us to believe that no meaningful government
support should be assumed for any entity that is not directly part of or
formally guaranteed by the government," said Philipp Lotter, at Moody's
Dubai office. The six downgraded firms are ports operator DP World,
Dubai Electricity and Water Authority, the business developer centre
Jebel Ali Free Zone, Dubai Holding Commercial Operations Group, Emaar
Properties and DIFC Investments.

The Dubai World woes have now spread to other state-run companies. The
$26bn debt restructuring of Dubai World could almost double to $46.7bn
as more of the emirate's businesses might struggle to meet debt
payments, Morgan Stanley said in a research report. According to the
investment bank, other companies that are vulnerable include Dubai
Holding, Dubai Holding Commercial Operations Group, Borse Dubai and
Dubai Sukuk Center.

Separately, Bloomberg News reported that Nakheel, the real estate firm
that has asked for a halt in its $3.5bn bond due on 14 December, made a
loss of 13.4bn dirham ($3.65bn) in the first half of the year. The loss,
which compares to a profit of 2.65bn dirham ($722m) in the same period
last year, was attributed to write-downs of real estate values and lower
sales, Bloomberg said.