The European Commission (EC) announced on Wednesday that three new countries—Cyprus, Denmark, and Finland—have been put on the watch list of countries with “government deficits deemed high enough to pose a threat to the wider European economy.”
The watch list now includes 26 of the 27 member countries, leaving only Luxembourg as being within the EU limit of a 3 percent budget deficit. Luxembourg finished 2009 at 2 percent. Cyprus recorded a deficit of 6.1 percent of GDP last year. Deficits are expected to reach 5.4 percent this year in Denmark and 4.1 percent in Finland. All three countries have been given deadlines to correct the situation.
The EC, however, also announced that 12 countries have taken effective action to fight their excessive budget deficits, by cutting government spending and introducing revenue-boosting measures as promised. Among them are Ireland, Italy, Portugal, and Spain.
With the EC trying to keep its financial house from crumbling, Moody’s announcement on Monday that it had downgraded Greece’s credit rating to junk status was criticized as “surprising” and “unfortunate” by EU Commissioner Olli Rehn.
The four-notch drop was justified, according to U.S.-based Moody’s, because of Greece’s lowered creditworthiness, despite the bailout plan approved last month giving Greece a $130 billion loan from the European Union and the International Monetary Fund (IMF).
European Parliament Socialist group leader Martin Schulz said on Wednesday that the financial institutions are making the situation worse.
Those who placed bets on the failure of the euro on international markets want to win those bets. “These people have no morals,” said Schulz according to a Parliament press statement.
“We have to make sure these people lose their bets on the markets. We have to make sure we win this battle.”
While the downgrading is a new blow to the country, experts say that that the new rating comes as no surprise. On April 27, Standard & Poor also downgraded Greece and another financial watchdog, Fitch says it will wait till end of the year to see the results of the austerity measures implemented by the Greek government.
However, this is the first time in the history of the eurozone, that a member country has lost its investment rating.
Analysts estimate the downgrade will reduce demand for Greek bonds even further and will lead to greater difficulties for the country in dealing with its budget deficit.
Moody’s experts, however, are confident that Greece will not need to sell bonds over the next two years since receiving the bailout, which is why they do not expect the downgrade to negatively affect the country’s balance sheet.
Greece’s Finance Ministry was unhappy about the new junk status and said it “does not reflect in any way Greece’s progress over the past months, nor does it reflect the potential created by the country’s effort of fiscal consolidation and increased competitiveness.”
“Greece is moving ahead with all the reforms stipulated in the Memorandum of Understanding, (and) for many of these reforms, it is already ahead of schedule,” the ministry wrote.
Moody’s also downgraded the city of Athens to junk status because of the uncertainty of the financial reform.
The watch list now includes 26 of the 27 member countries, leaving only Luxembourg as being within the EU limit of a 3 percent budget deficit. Luxembourg finished 2009 at 2 percent. Cyprus recorded a deficit of 6.1 percent of GDP last year. Deficits are expected to reach 5.4 percent this year in Denmark and 4.1 percent in Finland. All three countries have been given deadlines to correct the situation.
The EC, however, also announced that 12 countries have taken effective action to fight their excessive budget deficits, by cutting government spending and introducing revenue-boosting measures as promised. Among them are Ireland, Italy, Portugal, and Spain.
With the EC trying to keep its financial house from crumbling, Moody’s announcement on Monday that it had downgraded Greece’s credit rating to junk status was criticized as “surprising” and “unfortunate” by EU Commissioner Olli Rehn.
The four-notch drop was justified, according to U.S.-based Moody’s, because of Greece’s lowered creditworthiness, despite the bailout plan approved last month giving Greece a $130 billion loan from the European Union and the International Monetary Fund (IMF).
European Parliament Socialist group leader Martin Schulz said on Wednesday that the financial institutions are making the situation worse.
Those who placed bets on the failure of the euro on international markets want to win those bets. “These people have no morals,” said Schulz according to a Parliament press statement.
“We have to make sure these people lose their bets on the markets. We have to make sure we win this battle.”
While the downgrading is a new blow to the country, experts say that that the new rating comes as no surprise. On April 27, Standard & Poor also downgraded Greece and another financial watchdog, Fitch says it will wait till end of the year to see the results of the austerity measures implemented by the Greek government.
However, this is the first time in the history of the eurozone, that a member country has lost its investment rating.
Analysts estimate the downgrade will reduce demand for Greek bonds even further and will lead to greater difficulties for the country in dealing with its budget deficit.
Moody’s experts, however, are confident that Greece will not need to sell bonds over the next two years since receiving the bailout, which is why they do not expect the downgrade to negatively affect the country’s balance sheet.
Greece’s Finance Ministry was unhappy about the new junk status and said it “does not reflect in any way Greece’s progress over the past months, nor does it reflect the potential created by the country’s effort of fiscal consolidation and increased competitiveness.”
“Greece is moving ahead with all the reforms stipulated in the Memorandum of Understanding, (and) for many of these reforms, it is already ahead of schedule,” the ministry wrote.
Moody’s also downgraded the city of Athens to junk status because of the uncertainty of the financial reform.
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