Greece Now at ‘Junk’ Status

Credit downgrades have hammered the euro in currency markets. Standard & Poor’s downgraded Greece to ‘junk’ status and downgraded Portugal to A-. On Wednesday S & P’s downgraded Spain putting further pressure on the multi nation currency. The ratings agency said that a longer than expected period of low growth could hamper Spain’s efforts to cut its deficit. Standard and Poor’s said its outlook is negative and a further downgrade is possible if Spain’s fiscal position deteriorates further. Standard & Poor’s said, “In our opinion, Spain is likely to have an extended period of subdued economic growth, which weakens its budgetary position. We now project that real GDP growth will average 0.7 percent annually in 2010-2016, versus our previous expectations of above 1 percent annually over this period. “The downgrade sent the euro to a one year low vs. the US dollar and Spain is now the third EU country to suffer a credit downgrade. Many analysts say that since Spain has a much larger economy than Greece further downgrades could create serious problems for the euro zone. Win Thin of Brown Brothers Harriman in New York stated, “Indeed, Spain is the 800 pound gorilla in the room. Greece and Portugal are small countries, but Spain is about five times their size with regards to GDP.” Spain still has top ratings from ratings agencies Moody’s and Fitch.

Greece May Need 120 Billion Euros

IMF chief Dominique Strauss-Kahn told German members of Parliament that Greece may need as much as 100 to 120 billion Euros over the next three years. German Green Party leader Jorgen Trittin said that German legislators were told that Greece should be taken off the market for the next three years to allow the debt ridden nation to get its finances in order. Market pressures have made borrowing costs for Greece unsustainable. Trittin stated, “The package will run over three years. Greece should be removed de facto from financial markets for three years.” Some German lawmakers demanded that Greek banks be included in the rescue package but the IMF and the ECB opposed the inclusion of banks.

Papandreou  Says Greece Ready to Make Necessary Changes

Greek Prime Minister George Papandreou said his nation is ready to make the changes necessary to emerge from the country’s debt crisis. Papandreou addressed Greece’s high borrowing costs and stated, “The interest rates on our bonds today is… prohibitive. This is yet further proof the markets do not regulate themselves and they do not, by definition, function rationally.”