Greek financial markets were hammered on Wednesday. The risk premium on Greek government bonds jumped and bank stocks tumbled, extending Tuesday’s losses on Fitch Ratings’ downgrade of its debt to BBB+, the first time it had fallen below investment grade for more than 10 years.
Fitch also cut Greek lenders’ ratings because of the government’s diminished ability to support banks that have a large exposure to Greek sovereign bonds. “We must close the credibility gap to survive as a sovereign and cohesive nation,” Papandreou told a televised cabinet meeting on Wednesday.
The national debt is forecast to hit 125 percent of gross domestic product next year, which would be the highest ratio in the euro area. “We must close the credibility gap to survive as a sovereign and cohesive nation,” Greek Prime Minister George Papandreou told a televised cabinet meeting on Wednesday.
The Athens Stock Exchange bank index lost up to 4.4 percent to trade 3.5 percent down at 0944 GMT, shedding about 16 percent of their value in five days.
“The losses are due to the rating cuts, which have heightened uncertainty amid investors,” said Joanna Telioudi, analyst at HSBC. Yield spreads between Greek and German 10-year government bonds widened to as much as 252 basis points, the widest since March, reflecting risk aversion among investors.
European partners kept up a drumbeat of pressure on Athens to put its house in order. French Finance Minister Christine Lagarde said she did not think Greece could go bankrupt but it must make a real effort to clean up its public finances. The German finance ministry said there is no reason to doubt Greece can do this alone, backing similar comments from Greek Finance Minister George Papaconstantinou.
