You are here: Economy » Video: Fitch downgrades Greece to BBB+ as violence erupts
Greece has been downgraded by Fitch Ratings to BBB+ over concerns about its budget deficit. Despite the cut, Fitch maintained a negative outlook on the country’s ratings, meaning it could fall further in the near future. This action highlights how the real sovereign debt crisis is in Europe not in Dubai.
The ratings agency 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.
Icelandic-style violence erupted in Greece on the anniversary of the death of a boy at the hands of Greek police. The combination of this tragedy, a deep recession, and a spiralling budget deficit now expected to reach 12% of GDP is ripping at the fabric of Greek society. Some are using this as an excuse to promote anarchy; just yesterday protesters stormed the Senate and hoisted an anarchist flag in place of the Greek national one. However, clashes in Athens have as much to do with the desperate economic situation as anything else, as a boy in the video below recounts.
Greece has the economy worst affected by the credit crisis in the Eurozone economy. Many speculators have looked to it as the next domino in the wake of troubles in Dubai. If there is any contagion from the events in Dubai, expect it to pop up here where credit default swap rates and spreads to German government debt have soared and bank shares have plunged.
In February, Niels Jensen noted that Greece’s long-term fiscal outlook is even more worrying than the near-term outlook given unfunded liabilities there.
Another issue, which is potentially even more destabilising for the euro longer term, is the massive liabilities facing Europe as its population ages. We have borrowed table 2 below from Goldman Sachs which makes no secret of the challenges facing a number of European countries. Greece is clearly facing the biggest challenge. Public debt, which currently stands at about 95% of GDP, will grow to a whopping 555% of GDP by 2050 if the current pension and Social Security programme is left unchanged. The Greek government is painfully aware of this and have been working on several new initiatives. It was the passing of one of those new laws which caused the riots in Athens before Christmas.
These issues are now re-surfacing and threaten to derail an incipient economic recovery. Greece bears watching given the potential for contagion if things do sour there. Other markets to watch for contagion are Spain, Portugal and Ireland as they are all part of the Eurozone and do not have control over monetary policy as a tool to fight a downturn.
About Edward Harrison
Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.
Like us on Facebook
Follow Edward on Twitter
- Asset allocation in a period of wealth mean reversion
- The mess in Portugal is negative for debt sustainability
- Jensen: How long bonds could actually outperform equities
- Profit mean reversion and recession
- Credit Writedowns is ending paid subscriptions for now
- If we don’t understand both sides of China’s balance sheet, we understand neither
- Do markets determine the value of the RMB?
- China’s stock markets and revisiting 2011 predictions
- The Greece debt bailout negotiations are really about France, not Greece
- Did lending by foreign banks really cause the Greek debt crisis?
- The coming Greek bank nationalization, bail-in and privatization
- Variable geometry bites back: Schäuble’s motives
- The new European Union
- More on Greek Tax Anticipation Note IOUs
- A Return to Fundamentals?
- Greek default
- The Euro is a failure
- Some thoughts on the coming defaults of Greece
- Greek default and Grexit now increasing in probability
- Morality in the Greek Crisis
-  China in SDR, massive Japan pension losses
-  Schiff on the US economy and Bruce on the Fed
-  Brynjolfsson on Bill Gross and markets, Roberts on refugees
- Paul Craig Roberts on the US economy and global refugee crisis
-  New government in Argentina; ECB and Fed poised
-  Rickards: US currency hegemony will pass slowly, not all at once
-  Rickards on China, SDR: “Next panic will be bigger than the central banks”
-  Barclays to cough up $150m in forex rigging scandal
-  Schiff on China and the threat of encryption
-  Anti-terrorism dominates G20 agenda