Greece downgraded over high debt By David Oakley and Kerin Hope, Financial Times. Hey, Blame on Turkey, why don't you?
rick murphy
Greece downgraded over high debt By David Oakley and Kerin Hope,
Financial Times. Hey, Blame on Turkey, why don't you?
http://edition.cnn.com/2009/BUSINESS/12/08/greece.downgrade.ft/index.html
Greece downgraded over high debt By David Oakley and Kerin Hope,
Financial Times
December 8, 2009 -- Updated 2028 GMT (0428 HKT)
London, England and Athens, Greece (FT) -- Greece saw its credit
ratings downgraded to the lowest level in the eurozone on Tuesday as
fears mounted over its deteriorating public finances.
Heavy selling of Greek stocks and bonds came amid fears that the
country was heading for financial disaster unless politicians tackled
dangerously high debt levels. Shares on the Athens stock exchange fell
more than 6 per cent.
Fitch cut ratings on Greek debt to BBB plus with a negative outlook.
It is the first time in 10 years a leading ratings agency has given
Greece a rating of below A grade.
George Papaconstantinou, Greek finance minister, said the country
would do "whatever is required" to reduce a record budget deficit and
achieve its medium-term fiscal targets.
He said the downgrade reflected Greece's "mounting credibility gap in
recent years and an exceptionally difficult fiscal situation" faced by
the new Socialist government, which took over in October.
Fitch said the downgrade "reflects concerns over the medium-term
outlook for public finances, given the weak credibility of fiscal
institutions and the policy framework in Greece, exacerbated by
uncertainty over the prospects for a balanced and sustained economic
recovery".
Moody's and Standard & Poor's, the other main ratings agencies, have
also warned Greece it could be downgraded owing to its debt, which is
forecast to rise to 125 per cent of gross domestic product next year.
Mr Papaconstantinou said both Fitch and Standard & Poor's had failed
to take into account recent government initiatives described as
positive by the European Commission. "Many analysts express
mistrust ... which has to do with the gap between words and actions in
recent years."
Mr Papaconstantinou was referring to Greece's repeated failure since
joining the euro in 2001 to carry out structural reforms and keep the
deficit within the eurozone limit of 3 per cent of gross domestic
product
Concern focuses on whether Greece will be able to implement new
revenue-raising measures swiftly enough to cut the deficit from 12.7
per cent to 9.1 per cent of GDP next year in line with budget
projections. Mr Papaconstantinou said Greece was prepared if necessary
to produce a supplementary budget in 2010.
Anders Borg, finance minister of Sweden, which holds the EU
presidency, said: "They [Greece] need to get serious about their
fiscal situation. You can't run a 10 or 12 per cent deficit."
Analysts also warned that the downgrade could pose problems for Greece
in raising money in the bond markets and through the European Central
Bank's liquidity operations.
Under pre-financial crisis rules, the downgrade would have disallowed
Athens from exchanging sovereign bonds for ECB loans as their credit
ratings would no longer be good enough.
Although the ECB will keep the emergency rules next year, Greece must
reduce its deficit soon. The relaxed ECB rules allow for collateral of
bonds with ratings of BBB minus.
Goldman Sachs said: "Unless the ECB fiddles with its rules before the
end of next year, then from the beginning of 2011, Greek sovereign
bonds will no longer be eligible for ECB collateral."