Ratings agencies Fitch and Moody's have sounded their collective alarm bells. Fitch has downgraded Greece and said European banks are hugely short of cash, while Moody's turned its attention to four regions in Spain.
Credit ratings agencies once again took aim at the eurozone on Thursday, with one downgrading Greece's perceived creditworthiness and warning that the banking sector was underfunded, while another downgraded four regions in struggling Spain.
Fitch announced that it had downgraded Greece from B- to CCC, the lowest rating assigned that is not considered at least partial default by the agencies, saying that the political deadlock in Athens and voter sentiment explained the move. Fitch released a statement saying it thought there was now an increased chance of Greece dropping out of the eurozone.
"The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union (EMU). The strong showing of 'anti-austerity' parties in the May 6 parliamentary elections and subsequent failure to form a government underscores the lack of public and political support for the EU-IMF 137-billion-euro program," the Fitch statement said, referring to the international loans packages granted Greece in recent years, often called "bailouts."
Lowering the ceiling
Fitch also said that it had revised the "Country Ceiling," the upper limit for any potential credit rating it would consider for the country or any person or firm taking out a loan in Greece, to a B- rating, compared to a previous top-notch AAA ceiling.
The agency's statement also said that it would consider a Greek withdrawal from the eurozone and the subsequent currency realignment as an automatic default.
The announcement coincided with the official swearing-in of a Greek caretaker cabinet, charged with stewarding the country towards new elections on June 17.
In a separate statement, Fitch said the world's 29 biggest banks would need to raise $556 billion (437.5 billion euros) by the end of 2018 in order to meet new cash reserve requirements. The agency referred to all 29 banks as "systematically important financial institutions."
Moody's focused on Spanish regions
Fitch's credit-risk counterpart, Moody's, on Thursday downgraded the perceived reliability of four Spanish regions, saying it thought they were likely to miss their deficit-reduction targets.
Moody's said it had lowered the credit ratings of Catalonia, Murcia, Andalucia and Extremadura "due to their poor fiscal performance in 2011 and the low probability that the regional governments will be able to meet the 2012 deficit target."
Spain, like the vast majority of the EU, is working to reduce its annual budget deficit to 3 percent of its total economic output, while simultaneously battling a recession and an unemployment rate of almost 25 percent.
In Spain, regional governments have a considerable amount of control over budgetary issues, with Catalonia - accountable for about one-fifth of Spanish economic output - struggling to agree on cuts with the federal government in Madrid. The Catalan government said on Thursday, however, that it had struck a deal with Madrid on spending cuts for 2012 worth 1.5 billion euros.
Cataloniawas demoted one notch to Ba1, Murcia by two to Ba2, Andalucia also by two to Baa2, and Extremadura was downgraded one step to Baa1.
msh/ncy (AFP, AP, dpa, Reuters)