STANDARD and Poor’s has pushed Cyprus further into junk territory by slashing its credit rating by two notches to CCC+, reflecting its view that the Cyprus government’s short-term financing position is increasingly vulnerable.
In its statement, S&P said “With the government’s financing options increasingly limited – coupled with what we view as the hesitant attitude of Cyprus’ eurozone partners toward sharing the cost of a severe banking crisis – we view the risk of a sovereign debt default as considerable and rising”.
“The downgrade reflects our view that Cyprus’ creditworthiness has deteriorated further since the last downgrade on Oct. 17, 2012, as financing pressures have intensified and uncertainty about the terms of any official support persists ahead of the February 2013 presidential elections.”
S&P noted that while Cyprus’ bailout talks with the troika (International Monetary Fund, the European Union and the European Central Bank) has been slow, some progress had been made.
It welcomed “far-reaching spending cuts” included in the government’s 2013 budget proposal, but cautioned “We believe the budget’s underlying revenue assumptions may be too optimistic.”
S&P said that the negative outlook indicated that another downgrade was possible, should “external and fiscal financing pressures escalate.”
“We see at least a one-in-three chance that we could lower the ratings again in 2013,” the agency said, adding that the rating could stabilize if a bailout deal was “quickly agreed”.
It is interesting to compare the behaviour of another small island to that of Cyprus. Ireland this week laid an additional raft of charges concerning the banking collapse against Shaun Fitzpatrick, the ex-head of Allied Irish Bank. He is probably going to jail for a long time. The Irish are getting their act together and straightening out the mess. The Irish people don’t like what is happening, but they are facing up to consequences in a way that Cyprus and Greece are refusing to do. This is because the people of that little island are different from the denialists that inhabit Cyprus and Greece.
Ireland will recover, Cyprus may not, for which its residents will suffer the consequences.
Denton, you are absolutely correct.
The real irony for Cyprus in all of this is the crucially poor timing brought about by a total lack of strategic thinking and planning by the ruling elite.
Precisely at the point in history when, with the advent of the massive hydrocarbon finds, the RoC should be looking to become the new ‘Dubai of the Med’, Catastrofias, the saviour of the people, has brought the RoC to a state of bankruptcy and Sovereign default, which puts it totally under the effective control of the very same neo-capitalistic forces he has been so critical about throughout his term in office.
What sweet irony is this?
And all of this just to vainly try and save his face and reputation so that he can claim that he was the peoples friend, and that he kept his promises to pay one extra salary in December 2012 and did not agree to the privatisation of the monopolistic, totally uncompetitive SGO’s or to the permanent removal of COLA, all of which will happen in any case after he has gone because of the decisions, or lack of them, which he took, or didn’t take, whilst in office.
What a massively high price for the RoC to pay for one man’s vanity, dogma and obstinacy.
@Costas… or how about ‘Chronic Cultural Corruption’?
Merkels’ problem is that domestically she is facing an escalating citizens’ revolt in Germany against backing an unconditional bailout of Cyprus. This is likely to result in a delay in the expected deal closure with the Troika in January, as she tries to persuade the German people that it is necessary. Whether this delay will be long enough to push Cyprus beyond its accessible liquidity and into a sovereign default remains to be seen.
To get the bailout deal closed, both the IMF and the Germans need to be convinced that at the very least Cyprus will sell off CYTA, AEK etc so as to make the total debt just about sustainable. The Russians have made it plain once again that they will only contribute any dosh in collaboration with the EU and only once the Troika deal is closed. Sorry Christo, but ‘game over’.
Those of us who knew Cyprus in the 50’s, 60’s, 70’s, 80’s and 90’s are not surprised at the current situation. The Cyprus we knew and that tourists came to love is lost, seemingly forever. Successive governments have attempted to punch above their weight and vainly attempted to impress others rather than build a sustainable and strong economy. The decision to concentrate on the financial service sector in the late 80’s at the expense of investment in its core revenue, tourism, has had a catastrophic effect in my humble opinion. However the Cypriot psyche is such that many will go without basic essentials in order to foolishly show off a Mercedes on the drive.
Plundering pension funds to prop up a mismanaged fiscal policy is foolish in the extreme but the government has no option other than to pull in as much cash as it possibly can from whatever sources in order to save losing face. Doing the obvious, the morally right, ethical and most financially beneficial seems to be discounted at every opportunity in order to preserve the benefits to the public sector, outdated and unsustainable benefits and over-bloated pensions.
Reality it seems is viewed as an illusion probably due to an absence of Zivania!
May I firstly wish Nigel and fellow-posters a Merry Christmas and good 2013, and thank Nigel for producing his excellent forum throughout a difficult year.
Further to Frank’s comment below, I would think that the slightly politically incorrect acronym “PIIGS” now needs the addition of Cyprus.
May I suggest “PIIGSKY”, which incorporates “Kypros”- and additionally hints at our Leader’s aspirations.
Not in the least surprising. A government in denial for getting on for 4 years, whilst the ‘PIIGS’ and others were acknowledging and taking action on their own dire economic circumstances, a President intent on ‘impressing’ the other 26 countries during his countries ill-timed EU Presidency and doing his absolute best to protect his personally supported Public Sector unions with their massively overblown remunerations. A completely ‘last minute’ recognition that a formal BailOut eventually became essential after a further 4 months of ‘ducking & diving’. Then a humbling ’11th hour’ formal Request for what in absolute terms is now recognised as the 2nd largest National Bailout after Indonesia’s in 1997. Delayed and thus highly urgent austerity measures being rushed through before the ‘Season of Goodwill’ ahead of what, it is recognised, may still lead to a delayed or reduced Bailout and a potentially historic departure from the Euro in the face of a national banking collapse. And then this very week facing a potential Selective Default as the government scrambled to beg/borrow Cyprus Utilities Pension Funds. A look at S&Ps sovereign ratings shows Cyprus now down in the depths with the likes of Belize and Grenada. And we are still left asking ‘How Low can you Go?’. We might still want to say “Merry Christmas” but, hmmm ‘Happy New Year”???
It would appear that this bailout is far from a done deal.
A spokesman for Angela Merkel today announced that a “debt haircut” for Cyprus, prior to any loan, had NOT been ruled out.
This seems to be at odds with what the Finance Minister believes to be the case as reported in this mornings CM.
So . . . worse than any of the PIIGS: even Greece!
Does CCC+ mean Cyprus Can’t Cope + it’s bankrupt?