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MOODY’S CREDIT RATINGS agency has driven Cyprus deeper into junk status with a two-notch downgrade to Ba3 over an increased likelihood that debt-crushed Greece will leave the eurozone.
Moody’s said in a statement that it has placed Cyprus’ rating on review for further possible downgrade.
It says that a Greek euro exit would likely raise the amount of money that the government may need to support its heavily Greece-exposed banking sector.
The agency said the two-notch downgrade also reflects the fact that the Cyprus’ finances are already strained and that it can’t borrow from international markets.
The downgrade comes as an added blow to the eurozone country as it seeks €1.8 billion to help recapitalize its second-largest lender, Cyprus Popular Bank, which is most heavily exposed to Greek debt.
Cyprus’ finance minister suggested earlier this week that the government could seek a European Union bailout to support the bank before crucial elections in Greece this Sunday which are seen as a vote on whether the country stays or leaves the eurozone. Vassos Shiarly said a loan from another country was also an option.
Greece is holding the repeat election following an inconclusive ballot on 6 May in which voters turned to smaller, mainly anti-bailout groups that have promised to renege on Greece’s austerity commitments that were made in exchange for international bailout money.
Moody’s said it now believes that Cyprus will need more money to support its banks than its earlier estimate, equivalent to 5-10 percent of the country’s gross domestic product. It said recapitalization costs would now increase the country’s debt levels by just over 10 percent of GDP.
The agency said these increased risks for Cypriot banks “may lead to much larger recapitalization costs to the government, and Moody’s needs to reflect these in the Cypriot sovereign’s ratings.”
On Tuesday, Moody’s downgraded two of Cyprus’ top three commercial banks by a notch over the heightened risk that Greece may leave the eurozone.
Moody’s said its review of Cyprus will focus mainly on political developments in Greece and how these could heighten the risk for Cypriot banks. It will also take into account Cypriot government plans to seek EU support for its banks and what strings may come attached.
Shiarly said earlier this week that he’s optimistic Cyprus won’t be forced into enacting harsh austerity measures if it seeks an EU bailout because of its low fiscal deficit and public debt relative to other EU members.
Cyprus has vowed to stick to a 2012 deficit target of 2.5 percent of gross domestic product and is preparing additional spending cuts and tax rises to fix a 1 percent deviation.
More importantly, the country wants to be seen by its EU partners as living up to its promises in the hope of clinching favorable terms on a possible EU bailout, such as protecting its low 10 percent corporate tax — a key selling point for its large services sector.
Standard & Poor’s agency currently rates Cyprus at BB+, a notch below the junk threshold, while Fitch rates the country at BBB, or a notch above junk.
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the eurozone is like a boat which is leaking water in from all corners and there’s a bunch of idiots inside trying to pail the water out with buckets riddled with holes unwilling to believe that she will sink.
The best description of the ECB/EU approach to the Euro disaster was from Daniel Hannan, an MEP from England who described it as a blood transfusion from one arm to the other with a pipe with a hole in it.
Best thing is for 6-7 countries, ourselves included, to leave the currency, and have the G20 come in to support an orderly transfer to a new currency.
The Euro is now threatening to bring down the global economy and still the EU refuses to act in a meaningful way.
the domino/contagion effect expressed as self fulfilling prophecies. the whole show is heading for a massive reset. the degree of order is crucial.
Here we go again, I’m finding it hard to believe the euro zone is going to survive.
Spanish 10 year bonds hit 7% this morning. Italian bonds also up. Greek unemployment up to 22.6% in the first q of 2012. Same q in 2011 it was 15.9%. Euro is falling to bits as we watch.
The solution to the problem is european bonds. This will not happen without full european Banking and fiscal integration. The first step towards this is ratification and implemtation of the Fiscal Stability Treaty.
It is impossible for the likes of Germany to ask their electorates to sanction euro bonds without these safeguards.
Politicians through out Europe know this, so why don’t they just get on with it? Because they are only interested in their own careers and will not risk being turfed out of office. They are content to do nothing so that if the whole project collapses in disaster they can say not my fault, it was them wot did it.
Our own political class are amongst the worst. The national interest is just a collecton of words to be trotted out at press briefings. All that matters to them is themselves.
Here we go again for over the last four years we have hear from the so called heads of the eurozone and the E.U. that they have come up with new plan however the new plan is always to little to late how can people in the E.U. beleive in what they say any more and I always said one size dosnt fit all and the euro would not last however it will be the E.U. will pay for the idiots that call governments
We are into injury time with this euro meltdown as soon as the Greeks jump ship it will be only a matter of time,only problem is there will be no penalty shot out , when this goes ti*s up and it will then things are going to be really bad, as brok lesnar said “here comes the pain “
Now is the time to start planting your own veg folks
Another self fulfilling prophecy
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