Monday, 25 June 2012

Cyprus Downgraded

Today, Fitch Inc downgraded Cyprus to junk status - as the country officially the EU for a bail out. Cyprus had been relying on Russia for funds, but has been forced to approach Europe for €1.8billion, approximately equivalent to 10% of that country's GDP, and making it the fifth EU member state to request funds. Cyprus, which is the EU's third smallest economy, cited exposure to Greek debts, and the need to recapitalise Cyprus Popular Bank.

The bailout request comes ahead of Cyprus assuming the Presidency of the EU in the second half of 2012. It follows Spain's request for €100billion, finalised on June 9th. This will be jointly met by the EFSF and the ESM, creating a headache for lenders and future investors as only one of the funds has preferred investor status. However markets have judged neither fund as containing sufficient money to solve Eurozone woes, with blame increasingly falling at Germany's door for failure to take action.
Moody's recently downgraded Spain's sovereign debt to one notch above junk status, and has kept the rating on review for further possible downgrade, although Moody's assigns the lowest rating to that country. It's banks have so far held on to ratings at least one notch above this, due to profitable overseas businesses.