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Agency rates Greece bonds 'junk' Agency rates Greece bonds 'junk'
(20 minutes later)
Greece's debt has been downgraded to junk status by Standard & Poor's amid concern it was not able to take steps needed to tackle its economic crisis.Greece's debt has been downgraded to junk status by Standard & Poor's amid concern it was not able to take steps needed to tackle its economic crisis.
The struggling nation wants 40bn euros (£34bn) from eurozone governments and the IMF to shore up its finances and allow it to make debt repayments. It makes the struggling nation the first eurozone member to have its debt downgraded to junk level.
But there are fears it will not meet conditions needed to access the funds. The news, which followed Portgal's rating also being cut, sent markets in the US and Europe sharply lower.
Earlier, Portugal's debt was downgraded as doubts intensified about countries with substantial debt relative to GDP. Greece wants 40bn euros (£34bn) from eurozone governments and the IMF to shore up its finances.
But there are fears it will not meet conditions needed to access the funds it needs to make debt repayments.
The downgrading of Portugal's debt came as doubts intensified about countries with substantial debt relative to GDP.
When ratings agencies downgrade the country's credit rating - it means they think it is now a riskier place to invest. If it reaches junk status, a country loses its investment grade status.
S&P said it was lowering its rating on Greece's debt to BB+ from BBB-, and was reducing Portugal's debt rating by two notches to A-.S&P said it was lowering its rating on Greece's debt to BB+ from BBB-, and was reducing Portugal's debt rating by two notches to A-.
The news hit markets in Europe and the US. In London, the FTSE 100 index closed down 2.6% with most of the losses following S&P's downgrade of Greece. On Wall Street, the Dow Jones index was 1.4% lower at 11,052.1 points.The news hit markets in Europe and the US. In London, the FTSE 100 index closed down 2.6% with most of the losses following S&P's downgrade of Greece. On Wall Street, the Dow Jones index was 1.4% lower at 11,052.1 points.
Shares in Greek banks slumped by more than 9%, the largest one-day fall in bank shares for 18 months.Shares in Greek banks slumped by more than 9%, the largest one-day fall in bank shares for 18 months.
'Prohibitive' rates'Prohibitive' rates
On Monday, German Chancellor Angela Merkel had pledged German support to a European financial aid package for Greece, provided "certain conditions" were met.On Monday, German Chancellor Angela Merkel had pledged German support to a European financial aid package for Greece, provided "certain conditions" were met.
She said that Germany would play its part in order to ensure the future stability of the euro but that Greece would have to be ready to accept "tough measures" over several years in return.She said that Germany would play its part in order to ensure the future stability of the euro but that Greece would have to be ready to accept "tough measures" over several years in return.
The unpopularity of austerity measures is worrying marketsThe unpopularity of austerity measures is worrying markets
Greece needs to raise 9bn euros ($11.9bn; £7.7bn) by 19 May, but has said it cannot go to the markets because of "prohibitive" interest rates.Greece needs to raise 9bn euros ($11.9bn; £7.7bn) by 19 May, but has said it cannot go to the markets because of "prohibitive" interest rates.
The Greek government's cost of borrowing on the money markets has reached record levels in recent days amid investor concern over whether a 40bn euro bail-out package for Greece will be agreed.The Greek government's cost of borrowing on the money markets has reached record levels in recent days amid investor concern over whether a 40bn euro bail-out package for Greece will be agreed.
Eurozone countries, together with the International Monetary Fund, have yet to agree details of the package.Eurozone countries, together with the International Monetary Fund, have yet to agree details of the package.
Investors are also concerned that the Greek government's austerity measures - designed to cut domestic spending and reduce its ballooning budget deficit - will prove too unpopular with the Greek public.Investors are also concerned that the Greek government's austerity measures - designed to cut domestic spending and reduce its ballooning budget deficit - will prove too unpopular with the Greek public.
S&P warned holders of Greek debt that they only had an "average chance" of between 30% and 50% of getting their money back in the event of a debt restructuring or default.S&P warned holders of Greek debt that they only had an "average chance" of between 30% and 50% of getting their money back in the event of a debt restructuring or default.
It said its action to cut the rating resulted from its "updated assessment of 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 said its action to cut the rating resulted from its "updated assessment of 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".