The credit rating agency Standard & Poor's downgraded Greece’s credit rating on Wednesday. Last week Fitch downgraded Greece’s rating. Both the agencies cut the credit rating due to the country’s huge debts. The public debt of Greece stands at $442B and its public deficit is about 13% of GDP.
In Debt Fears Rattle Europe, the Journal notes that the Euro tumbled to $1.4505 yesterday. Austria nationalized Hypo bank on ECB’s orders and there are new fears that another Austrian lender may be in trouble as well. Hypo bank is the sixth largest bank in Austria and ran into trouble due to hidden losses from its exposure to Eastern Europe.
The European countries with huge budget deficits are Portugal, Ireland, Italy, Greece and Spain which are now dubbed as “PIIGS” by traders.
The External Debt of Greece stood at $552B at the end of Q2 2009 as the table shows below. The external debt rose a massive 481.87% in 2008 due to wasteful spending by Greek politicians. Most of the money went to fund social spending and high wages paid to public workers many of whom were hired by politicians to show their gratitude for electing them. This is why Greece continues to be the poorest country in Europe and it's why its credit rating was downgraded.
Gross External Debt Position (in US$ millions)
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Source: The World Bank
Portugal, Ireland, Italy and Spain also have high external debt levels. Italy’s external debt increased by over 10% from the start of the year through 2Q, 2009.