Greece’s debt has just been downgraded, and experts say that if the country goes belly up, the euro could be in big trouble.

"The Greek problem will be an acid test for the currency union," a senior German government official told German magazine Der Spiegel.

Fitch Ratings cut Greece’s credit rating to BBB+, the third-lowest investment grade.

Meanwhile, Standard & Poor's placed Greece's A- rating on watch for a possible downgrade, meaning it could be slashed within 60 days.

Greece is the lowest-rated country in the euro zone.

“Volatility is likely to continue for some time,” analysts at Barclays Capital wrote in a note to clients.

Greece is struggling with a weak economy and a massive debt burden.

The economy contracted 1.7 percent in the third quarter from a year earlier, and the budget deficit totals 12.7 percent of GDP.

While the government has plans to cut the gap, many analysts are skeptical.

"The likely rise in public debt to more than 120 percent of GDP next year and further to 125 percent in 2011 would leave the public finances highly exposed to shocks," Fitch analysts wrote in their report.

Experts are concerned that a Greek bankruptcy could spread to other countries in Europe.

“Greece is a whole lot more important than Dubai,” Uri Landesman, a fund manager at ING Investment Management, told Bloomberg.

“There are a lot of banks, in Europe especially, that have exposure to Greece.”

European Central Bank President Jean-Claude Trichet has said the euro-zone economy faces a rough road to recovery.

"The real economy is back to growth but we don't declare it (crisis) over. It is a bumpy road ahead, we have the sentiment that growth remains modest and we have to remain alert," Trichet said in an interview with the Europarltv, a television channel of the European Parliament.

source HERE

Posted by Mr Thx Friday, December 11, 2009


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