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Greek Debt Downgraded By S and P

by Jim ONeil on May 13, 2011

in uk banks

On Monday, Standard & Poor’s (S&P) downgraded the credit rating of Greece, leading to renewed concerns that the debt crisis in Europe is worsening. According to the bond rating agency, Greece will likely be provided additional time for bailout loan repayment.

A similar deal will probably be negotiated on bonds that are held by commercial investors.

Long-term Greek government bonds were downgraded from B to BB- by S&P. The agency reported that Greece might need to resort to partial default. It may have to renege on up to half of its current debt, leading S&P to downgrade the country once again in upcoming months. Authorities in Europe are discussing whether increased efforts are required to assist Greece with its massive debt.

In March 2010, the International Monetary Fund and European Union provided approximately US $160 billion to rescue Greece from impending financial collapse. On Monday, officials from these two organizations were in Greece to assess whether promised economic reforms were taking place.

They also examined whether this current program will enable the country to be self-sustaining once the loans expire in 2013.

Most investors doubt that Greece will be able to get by with only this initial infusion of cash. The country has taken drastic steps like enacting stringent austerity measures, economic reform, and a $73 billion privatization program. However, the public finances are not improving as much as anticipated.

The economy is still in recession, leading consumers to take out loans to keep themselves afloat. Many people do not have enough money to cover increasing expenses, let alone infuse cash into the economy. Governmental difficulty raising revenue is estimated to result in a $44 billion financial shortfall in coming years.

Other European nations are struggling themselves, with little money left to help Greece out of its seemingly inevitable downward spiral.


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