Greece Downgraded To Junk Status

28 Apr

Readers will be aware that I’ve been highlighting news about the Greek debt situation for some months. As a member of the European Monetary Union, and the Eurozone country with the gravest debt situation, it was always likely to be the first domino to fall.  Now it has.

From AAP:

Greece’s debt has been downgraded to junk status by Standard & Poor’s amid mounting fears that the debt crisis in Europe is spiralling out of control.

In a statement on Tuesday, the agency says that it is lowering its rating on Greece’s debt to BB+ from BBB- – that means that the country’s debt does not carry the investment grade tag.

The agency is also warning debtholders that they only have an average chance of between 30 to 50 per cent of getting their money back in the event of a debt restructuring or default.

European stock markets and the euro sank on Tuesday amid growing fears that the Greek debt crisis will spread to other weak eurozone countries, with Portugal now in the firing line.

“It can really be summed up in one word – contagion,” said CMC Markets analyst Michael Hewson.

The markets fell after Standard & Poor’s, a leading international ratings agency, downgraded Greek sovereign debt to junk status and cut Portugal’s long-term credit score by two notches.

The London stock market dived 2.61 per cent, the Frankfurt DAX sank 2.73 per cent and the CAC 40 in Paris plunged by 3.82 per cent. The Lisbon stock market sank by 5.36 per cent and Athens plunged six per cent.

The euro, which has been rocked for months over the debt drama in Greece, plunged again against the US and Japanese currencies, falling to $1.3250 from $1.3378 a day earlier and to Y123.46 yen from Y125.72 on Monday.

….

“Greece’s fiscal problems, and the market’s lack of confidence in dealing with them, are spilling over to other countries seen as having a kindred fiscal spirit,” said Patrick O’Hare at Briefing.com.

Greece has asked the European Union and International Monetary Fund to activate a three-year rescue package worth up to E45 billion ($A64.98 billion) in the first year.

However, the bailout is shrouded in uncertainty, with Germany insisting that Athens must first demonstrate how it plans to get its public finances in order before it gets the money.

“It is still the uncertainty surrounding this Greece bailout,” added Spreadex trader David Rees.

To compound matters, the EU/IMF rescue package may not be enough to resolve the wider problem of debt, according to VTB Capital economist Neil MacKinnon.

“The markets are worried that any fresh EU/IMF package to cover Greece’s funding needs in the short term are not enough to resolve the problem of worsening debt sustainability,” MacKinnon told AFP.

“Double digit interest rates and triple-digit debt levels are a recipe for debt restructuring and eventual default.”

The Greek debt crisis also unnerved Wall Street, with the Dow Jones Industrial Average sliding 1.24 per cent, Nasdaq shedding 1.44 per cent and the Standard & Poor’s 500 index declining 1.57 per cent.

The first domino has fallen. Who will be next? And just how far will the contagion spread?

Barnaby Joyce began speaking out about the risks to our economy from excessive debt both here and in other countries as early as October last year. For this, he was ridiculed and smeared by our know-nothing media and “expert” economic commentariat, and by the pompous “authorities” in government, the Treasury, and the RBA.

All of these utterly failed the Australian public, by their complete failure to foresee the on-rushing first wave of the GFC in 2008.

Now they are failing us all over again, by their naïve and arrogant dismissal of the potential global impacts of the rapidly spreading Eurozone debt crisis.  They seem to believe that because our island “escaped” the first wave, that somehow means we will miss the next (bigger) one as well.

Barnaby Is Right.

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