S&P fuels fear over Eurozone

 
Marion Dakers
STANDARD & POOR’S downgraded Greece and Portugal’s sovereign credit ratings yesterday, sending their borrowing costs up.

Greece’s rating has been cut to BB-, close to junk status and worse than Egypt’s credit standing, while Portugal is now rated BBB- with a negative outlook by S&P.

The yield on Portugal’s ten- and two-year bonds jumped to Eurozone lifetime highs after the downgrade, and the yield on Greece’s two-year bonds rose 10 basis points to 15.46 per cent.

S&P analyst Frank Gill said the downgrades came after the agreement by European leaders last week to replace the EU’s bailout fund with the European Stability Mechanism in 2013, which could potentially require nations to restructure sovereign debt before they can borrow.

Ireland also suffered a setback yesterday when it emerged that bancassurer Irish Life & Permanent, the only domestic lender to avoid a state bailout thanks to its cash-rich insurance arm, could fall into state control after this week’s stress tests.

The Irish central bank is due to publish results of its banking stress tests tomorrow, but reports of a looming bailout for Irish Life sent its shares tumbling 47 per cent yesterday.