S&P cuts Greek debt to junk, downgrades Portugal
Markets in Europe and the United States tumbled in reaction to signs that the Greek debt crisis was spreading to other highly indebted states on the periphery of the euro zone.
U.S. crude oil futures sank more than 2 percent and the euro fell back near a one-year low against the U.S. dollar.
"It's contagion from the Greece crisis which has spiralled out of control. That creates an element of doubt about other countries that have a substantial amount of debt relative to GDP," said William Sullivan at JVB Financial Group in Florida.
"It's like coconuts falling from the tree. There's a flight from sovereign debt issuers that have suspect national finances."
Sullivan said there was "outright panic" among investors who feared they would lose some of their principal if Greece restructured or defaulted on its debt.
S&P cut its rating of Greek government debt by a full three notches to BB-plus, the first level of speculative status. The outlook is negative, meaning the agency could downgrade Greece again.
The downgrade put Greece on par with Romania and below Kazakhstan, Hungary and Iceland, the last of which rocked global markets when its main banks imploded at the start of the global financial crisis.
S&P cited the "political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory."
It assigned a recovery rating of "4" to Greece's debt, indicating it expected an "average" recovery of between 30 and 50 percent for holders in the event of a Greek restructuring or default.
[Source: Reuters, Athenes, Berlin, 27Apr10]
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