Greece suffered a fresh blow to its financial standing on Friday when Standard & Poor's downgraded two top banks and warned that the Greek economy was in worse shape than it had thought. The latest move by the ratings agency followed its downgrade late Wednesday of Greece's sovereign credit despite pledges by the government to tame a huge national debt and a gaping public deficit.
And it came before a critical crisis weekend debate on budget action to shore up the economy, which is drowning in debt, while also shoring up market and EU confidence that the government will make urgent reforms. The actions by S&P will make it even harder for the government to borrow money on international markets to overcome the shortfalls at a time when its eventual solvency, as well as the viability of public finances in other indebted eurozone members, has been called into question.
The Socialist government of Prime Minister George Papandreou is also facing mounting trades union resistance to planned austerity measures drafted under pressure from financial markets and the European Union. In addition, several district offices in Athens of Papandreou's Socialist party were targeted by an arson barrage early Friday just hours after protest strikes and demonstrations were staged in more than 60 Greek cities.
Standard & Poor's said on Friday that it had downgraded the long-term ratings on Eurobank, Greece's second-biggest bank, and Alphabank, the third biggest, to BBB from BBB plus. Both the long and short-term ratings on the banks were placed on the agency's negative watch list. The agency also put the biggest private bank, the National Bank of Greece, under negative watch with regard to its equivalent BBB plus and A2 ratings. It took the same action on the fifth-biggest bank, the Banque of Piraeus for its BBB and A2 ratings.
"Our near-term economic prospects for Greece incorporate a more pronounced and faster economic deterioration than we previously anticipated," Standard & Poor's said. Greece's debt is now estimated at 300 billion euros (436 billion dollars), three times the size of Germany's. Its public deficit is likely to rise to 12.7 percent of output this year, far exceeding the limit of 3.0 percent for countries that use the euro currency.
The interest rate which Greece has to offer to attract savers to finance its overspending has shot up in recent weeks and is now about twice the interest rate which Germany has to offer, and is approaching 6.0 percent, often considered to be a new red line for an advanced nation such as Greece. The country is also mired in recession and has an unemployment rate that authorities said Thursday had risen to 9.3 percent in the third quarter, up from 7.2 percent in the same period in 2008.
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