Greece Cut to Junk at S&P as Contagion Spreads
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Greece’s credit rating was cut three steps to junk by Standard and Poor’s, the first time a euro member has lost its investment grade since the currency’s 1999 debut. The euro weakened and stock markets throughout the region plunged.
Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The move, which puts Greek debt on a par with bonds issued by Azerbaijan and Egypt, came minutes after the rating company reduced Portugal by two steps to A- from A+.
The turmoil comes as European Union policy makers struggle to agree on measures to ease the panic over swelling budget deficits. Leaders of the 16 euro nations may hold a summit after the Greek government’s decision last week to tap a 45 billion- euro ($60 billion) emergency-aid package failed to reassure investors, a European diplomat and Spanish official said.
“The markets are demanding their pound of flesh and want everything to be signed, sealed and delivered as of yesterday,” said David Owen, chief European financial economist at Jefferies International Ltd. in London.