Greece debt downgraded by Fitch by two notches

As if not facing enough trouble Fitch rating agency has downgraded Greek sovereign debt from CCC to C just one notch above default. At the same time unions are mounting new protests against austerity measures.

Greek unions have staged fresh protests as the country's parliament debates emergency legislation to carry out a euro zone bailout deal and Fitch ratings says the country is close to default. The new bailout deal is worth 310 billion.

The rating agency claimed that a Greek default was highly likely and in the near term in spite of the bailout package. Greece has already been in recession for five years and unemployment is running at 20 per cent. The cuts to the public sector will drive unemployment even higher.

Along with more austerity measures a draft law forecasts the 2012 deficit to be 6.7 per cent of GDP up from an earlier forecast of 6.4 per cent. Nearly 5,700 demonstrators marched in new protests in Athens. Another 2,000 demonstrated in Thessaloniki.

Elections are scheduled for April. Parties both on the left, right and in the middle who support the austerity measures will probably suffer at the polls. The present governmet is a coalition of right, center, and left (socialist) parties. So-callled reforms being debated include cuts to the health care system of 1.3 billion further reducing services as the need for them is increasing.

By the end of February Greece must approve more than 3.9 billion in added cuts to those already agreed to..Even the constitution is to be amended so that debt repayments take precedence over any other government commitments. Health, education, security, pensions, all are subservient to finance capital. Democracy is dead in Greece and the markets cheer. Although the cheering is dying down as many realize default is on the horizon in spite of all this drastic action. For more see this article.

Fitch ratings: France still triple A but outlook negative

    Several other European countries were also downgraded by placing them on a rating watch negative review. The agency expects to complete the review for Spain, Italy, Belgium, Slovenia, Ireland and Cyprus by the end of January.
    The move by the rating agency will put more pressure on Eurozone leaders to do more to solve the two year debt crisis in Europe. Although European leaders have agreed to form a tighter fiscal union but the debt crisis for several countries has not been resolved.
   There has been resistance to using the European Central Bank as a backup. The ECB has not as yet made a commitment to buy bonds of the countries needing debt financing. Fitch claims that the meeting of European leaders did not produce definitive policy solutions to the crisis. For more see this article.


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U.S. economy exceeds expectations but stocks slump on Europe worries

While some economic data released recently about the U.S. economy exceeded expectations U.S. stock indices went down today. Both Fitch Ratings and Moody's Investors Service said that the recent agreement at the summit of European leaders has not done much to relieve pressures on those European governments that are struggling with huge debts and high borrowing costs.

The warnings were enough to reverse a rally that has been going on in U.S. for a couple of weeks in spite of the fact U.S. indicators show the economy is outperforming expectations the most in nine months. An Economic Surprise Index went to 85.7. This is the highest since March 9.

November unemployment although still very high, hit the lowest level in two years. Manufacturing is also growing quickest in five months. Nevertheless Ben Bernanke head of the Federal Reserve said that there were significant downside risks facing the U.S. economy. For much more see this article.