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.