Greece Is Junk

S&P just downgraded Greece's debt to junk. This is the latest suggestion that, even with multibillion-dollar bailout likely to come from the EU and the IMF, Greece may default on its debts.

Basically, S&P says, the terms of the bailout may force Greece to tighten its budget even more. That will be politically difficult and could also choke off the GDP growth that would be essential for Greece to dig itself out of debt.

S&P projects Greece's national debt to be 131% of GDP by 2011, up from 115% as of last year.

S&P also downgraded Portugal today, though Portugal still hasn't sunk to junk status.

A Greek default would probably prompt investors to demand higher interest rates on bonds sold by countries such as Portugal and Spain. That could in turn raise the risk that those countries would need bailouts of their own.

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