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Standard & Poor’s downgrades Cyprus to junk status

Ratings agency Standard & Poor’s has cut the credit ratings of Cyprus by two notches to junk status as a result of the problems within the eurozone and the Cypriot financial institutions’ significant exposure to Greece.

YESTERDAY Standard & Poor’s announced that it had downgraded the creditworthiness of nine Eurozone nations, including a two-notch cut in the ratings of Cyprus, Italy, Portugal, and Spain.

The downgrade resulted in Cyprus’ long-term sovereign credit ratings being cut from ‘BBB’ to ‘BB+’ (junk), and a cut in its short-term rating from ‘A-3’ to ‘B’.

In its press release, Standard & Poor’s said “The downgrade reflects our opinion of the effect on Cyprus of deepening political, financial, and monetary problems within the European Economic and Monetary Union (eurozone), with which Cyprus is closely integrated.”

“The downgrade also reflects our view of Cypriot financial institutions’ significant exposure to Greece, which we believe further exacerbates Cyprus’ existing external vulnerabilities.”

“The outlook on the long-term rating is negative.”

The downgrade will result in a tightening of the money supply and increased borrowing costs.

Cyprus blasts downgrade

CYPRUS accused Standard & Poor’s of bias and improper behaviour in downgrading the Island’s economy to junk status.

Finance Minister Kikis Kazamias said that the decision on Cyprus was arbitrary and unsubstantiated and that Standard & Poor’s had acted in a high-handed manner. He said that the ratings agency had ignored the Island’s moves to reduce its deficit and improve its finances.

Mr Kazamias said that Standard & Poor’s had turned down his application for a reconsideration and questioned whether the agency served other expediencies. He also said that the agency had ignored the fact that the European Commission had only recently praised Cyprus for tackling its deficit levels and that it has fully covered its financing requirements for 2012.

President Christofias also said that Standard & Poor’s decision was unjust, unacceptable and laden with expediencies. Christofias said that the international agency had downgraded Cyprus on the pretext of external factors at a time when its economy has given signs of recovery and significant reserves of natural gas had been discovered.

However, the President conceded that it will take some time before gas exploitation could start and advised a reserved stance on the issue.

Readers' comments

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  • Gavin Jones says:

    In any back to the wall situation, be it personal, political, economic or military, one essential ingredient is required to pull things around: discipline. History is littered with examples of armies disintegrating into rout or else withdrawing in an orderly fashion and regrouping to fight another day.

    In Cyprus, discipline simply doesn’t exist. Period. The island can metaphorically be categorized into the above routed army scenario. How can it be otherwise when the state’s institutions repeatedly and overtly demonstrate their inbuilt tendency to lie, corrupt, deny that their policies are a disaster and fail to take corrective action.

  • Richard says:

    Excellent – now they have to do what all countries have to do that have landed in it.

    Trade out of trouble – and that means tackling not only property – but lots else besides. I’m actually glad it’s this bad – because it has to get this bad to get better – clearly.

    I’m quite sure there will be all sorts of well-reasoned responses on the forum soon why that will be difficult/impossible etc.

    Fact is – in this century – with all sorts of expanding populations and migrating cultures – we all have to just that little bit better at believing in miracles.

    Miracles do happen (if not a miracle – then something spectacularly unexpected will probably scrape by as passable)…

    On a final note though…

    Where were ‘Standard & Poor’ back in 2006?

    Can’t all have been out on a cocaine break – could they..?

  • out of the frying pan into the fire says:

    Well Cyprus credit rating has just matched that of their Lawyers, Developers, Banks, Estate Agents.

    Junk and more Junk.

    Cyprus made it’s bed now it can lie in it.

    Well done Cyprus and all those who sail in power.

  • Steve says:

    Whenever the rating agencies downgrade a country’s credit rating the very same politicians, whose inept financial management and attempts to cover up bad news by borrowing money to throw at the problem, suddenly become financial gurus who can second guess the rating agencies and point out to them the reasons why their lower rating is a mistake. Beware Greeks bearing junk bonds!

    We, the voters, put ourselves in the hands of fools and idiots. Why do we do that?

  • martyn benstead says:

    Cyprus government still in denial and blaming everybody else, wake up and smell the stench of corruption.
    Junk status for a junk government

  • Costas Apacket says:

    Mr. Kazamias,

    Having extended never ending and unsustainable credit lines to their Greek cousins Cyprus has at last reached a debt Enosis with Greece.

    A way out?

    Why not issue the 130,000 or so outstanding Title Deeds at an average Transfer Tax income of circa 10,000 Euros per Title Deed?

    What’s that?

    You can’t because your Developer friends owe your Banks circa 6 Billion Euros in secondary loans and encumbrances ‘secured’ against the property & land they have already sold and been paid for by purchasers who have also got loans from your Banks ‘secured’ against the same assets?

    So massive unrecoverable loans to a bankrupt Greece compounded by massive unrecoverable loans to your bankrupt property Developers.

    I’d stop digging and get issuing if I was you.

    I think S&P are being kind only reducing Cyprus to junk status!

    More to come I suspect.

  • Denton Mackrell says:

    So much huffing, puffing and general flatulence from the Cyprus political elite! I’m sure the sheer volume of methane and hot air they collectively emit must contravene the EU Greenhouse Gas Emissions Directive or some such.

    If ordinary people foresaw that we were obviously heading for economic demise and junk status, how come these illustrious and highly paid bankers and ‘governance experts’ leading this country did not? Is blaming everyone but themselves their best shot?

  • Mike says:

    It must be said that France are also fuming, as are Austria for their downgraded ratings too. For France it must be an affront to their governments integrity as it is they, along with Germany, who are lecturing the rest of Europe on economic expediency.

    I would think that on balance Cyprus deserves its rating if for no other reason other than the situation it would find itself in should it ever deem it right and proper to issue title to homes that have been paid for thereby not only complying with natural justice and human rights but at a stroke finding that its banks hold billions in debt with no collateral to balance the loan. In effect trading insolvently and by definition in a state of bankruptcy.

    I’m afraid gas revenues are a long way off and in any case Cyprus will only receive a percentage of what is left after all operators and contractors costs are deducted. This will not be as much as many are hoping as exploration, drilling and extraction costs are vast. Fortunately, generally speaking, where there is gas there is a possibility of oil beneath it.

  • Ian Hardy says:

    Paranoia rules! It’s all a dirty trick by those damn foreigners.

    If Kazamias had taken the time to read the press release he would have seen that the downgrade was nothing to do with reducing the Island’s deficit and improving its finances.

    The downgrade was due to the banks exposure to the Greek debt.

  • Curmudgeon says:

    ‘CYPRUS accused Standard & Poor’s of bias and improper behaviour in downgrading the Island’s economy to junk status’.

    Cypriot politicians inner sanctum of denial still working overtime then.

  • Desmo says:

    Cyprus – Junk status richly deserved and that includes the criminal property laws.

  • Gavin Jones says:

    President Christofias and the entire Cypriot political establishment.

    You’ve all managed to ruin your country’s standing, both politically and economically, and there’s nowhere else for you to hide. Your collective incompetence and inability to face reality have finally caught up with you.

    It’s indeed a pity that the Cypriots themselves have allowed you to behave in such a manner. Perhaps electorates do get the governments that they deserve.

    RIP Cyprus.

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