Tuesday, December 8, 2009

Fitch Downgrades Greece

One of the consequences of the formation of the European Union and Greece's membership in it is that Greece no longer has its own sovereign currency that it can use to print its way out of its current financial mess. So now it must face the consequences without that crutch. Which makes its debt very dicey to hold.

The ratings-agency Fitch has cut the debt of Greece to BBB+ from A-.

"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," Fitch Ratings said, in a statement.

The agency also assigned the rating a negative outlook, a warning that it could be further cut in the future.

The move comes a day after rival ratings firm Standard & Poor's put Greece's A- rating on CreditWatch negative.

Investors demanded a yield premium of 216 basis points, or 2.16 percentage points, to hold 10-year Greek government bonds over 10-year German bunds, the euro-zone benchmark, traders said.

That's up from 172 basis points from ust five days ago and from around 137 basis points a month ago.

The cost of insuring Greek government debt against default continues to climb, with five-year credit default swaps rising 13.8 basis points to 204.40, according to CMA Datavision. That means it now costs around $204,400 a year to insure $10 million worth of Greek government debt against default.

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