Greece Downgraded to Junk by S&P

by Marilou Moursund on April 27, 2010

in Credit Crisis,Debt,Fiscal Policy,Foreign Markets

Standards & Poors downgraded Greece to below investment grade this morning.  The CDS spread has been widening dramatically over the past several days, and yields have spiked as well.  Much of the turmoil has been caused by apparent disagreement within the EU over the appropriate course of action to take.  From today’s English language version of Der Spiegel:

“For weeks, Chancellor Angela Merkel had promised citizens that she would only be disbursing German taxpayer money to Greece as a “last resort.” And if the assistance did become necessary, Merkel said, trying to reassure the members of her own party, Greece was not expected to ask for help until mid-May. It was Merkel’s way of keeping the sensitive issue out of the campaign for a key state election in North Rhine-Westphalia on May 9.

But now Athens’ call for help has made it clear that Merkel’s Greece strategy has failed completely. The European drama involving government debt and greedy speculators isn’t sticking to national schedules. While the CDU/FDP state government in North Rhine-Westphalia worries about losing its majority, the chancellor faces unpleasant debates in Berlin.”

Portugal was downgraded this morning as well to A-.  High debt and low economic growth combined with large commitments to public worker unions is proving to be an unsustainable model for governments around the world.

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