First Dubai… Now Greece… Who’s next?
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First Dubai… Now Greece… Who’s next? Greece saw its credit ratings downgraded to the lowest level in the eurozone on Tuesday as fears mounted over its deteriorating public finances.
For the first time in 10 years, Greece lost its A rating, as Fitch cut ratings on Greek debt to BBB+ with a negative outlook. Dubai’s stock market has lost 20% of its value since the news of its own downgrade… Yesterday, shares on the Athens stock exchange fell more than 6 per cent.
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”.
The main concern is the budget deficit of 12.7 per cent (rather worryingly not a million miles from the UK’s own Public Sector Net Borrowing requirement this year estimated to be 12.4 per cent!) which should be kept within 3% of GDP, as per the Euro area rules a la Stability and Growth Pact.
There will no doubt be a negative knock on effect on its ability to raise debt, finance current account deficits, pursue fiscal expansion, attract the longer term FDI flows, and not to mention on the short-term speculative flows of hot money too.
Credit rating agency Moody’s warned yesterday that the UK faces “an inexorable deterioration of debt affordability in the short term” due to a structural public deficit running above 10% of GDP.
Moody’s confirmed Britain’s AAA credit rating, but placed it in the middle of three categories within the band. The view seems to be that the UK’s “resilient” rating means that it may test the boundaries of the AAA band, but displays the capacity to rebound and reverse its debt problems. Let’s see how they feel about the matter after tomorrow’s Pre-Budget Report!
A reminder that Venezuela and Ukraine are top of the credit default risk tables…
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