Greece Debt Rating Downgraded To Junk

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Stock markets in the U.S. and Europe were sharply lower Tuesday after Standard & Poor's downgraded Greek debt to junk status. Greece has been negotiating the terms of a financial aid package with the EU and the IMF, but Germany has been demanding that Greece adopt harsh austerity measures as a condition of receiving aid.


From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.


And I'm Michele Norris. There were signs today that the debt crisis in Greece is spreading to other countries and even affecting the U.S. market. Stock prices took a hit around the world, and the Dow Jones Industrial Average fell 213 points to finish below 11,000. It all happened after ratings agencies downgraded Greek government bonds to junk status. NPR's Jim Zarroli reports.

JIM ZARROLI: One economist calls what's happening in Greece a death spiral of government insolvency. The country has some $10 billion in debt coming due next month. And though it's been promised aid from other European countries, Germany in particular says Greece hasn't done enough to cut spending.

Mr. PAUL De GRAUWE (Economist, Catholic University of Leuven): It has become clear for those who didn't know it already that despite an agreement, the German government is not willing to come up with the money.

ZARROLI: Paul De Grauwe is an economist at the Catholic University of Leuven in Belgium. And he says the more Germany balks at providing help, the more worried investors become, and Greece has to pay ever-higher interest rates to raise the money it needs, which means its debt load grows any higher.

Today, Standard & Poor's lowered Greece debt to junk status, saying investors should expect to get no more than 30 cents back for each dollar they've invested there. And the worries about Greece are casting doubt on other European countries, as well. S&P also lowered the debt rating for Portugal, something De Grauwe says doesn't make a lot of sense.

Mr. De GRAUWE: Its debt level is about average. So it's quite surprising that now Portugal is hit, too.

ZARROLI: In fact, Portugal is widely viewed as having much sounder finances than Greece, but such is the nature of economic contagion: Trouble in one Southern European country raises doubts about others.

Today, the fears even reached this side of the Atlantic. U.S. stock prices have been steadily rising because of the economic rebound, but Jack Ablin of Harris Private Bank says what's happening in Europe sent prices down sharply today.

Mr. JACK ABLIN (Harris Private Bank): Keep in mind that the majority of revenue derived from large companies in the U.S. is from overseas, and anyone that is investing in blue-chip stocks is really making a bet on the global growth story.

ZARROLI: As the situation in Europe grows dicier, investors are doing what they always do in anxious times: They're seeking the so-called safe havens, especially U.S. government debt. The dollar rose, and interest rates on Treasury bills fell sharply today.

Ablin says for all the United States's debt problems, investors still see it as less risky.

Mr. ABLIN: So it's like the campers and the bear. The camper doesn't have to outrun the bear, it just has to outrun the other campers. And right now, the United States is the fastest camper.

ZARROLI: U.S. investors are feeling the impact of the looming Greek tragedy, but it's still Europe that will pay the bigger price.

Jim Zarroli, NPR News, New York.

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