By: Mike Campbell
Despite the Greek government unveiling plans to secure a 10% cut in public spending, a second ratings agency has decided to downgrade the country’s credit rating. Standard and Poor’s (S&P) followed Fitch in down rating the nation’s credit worthiness. S&P were unimpressed by he government’s plans, suggesting that cost-cutting measures were unlikely to cause a sustainable reduction in the nation’s public debt on their own. S&P commented that: "We believe that the government's efforts to reform the public finances face domestic obstacles that would likely require sustained efforts over a number of years to overcome." The move signals to global investors that the ratings agency believes that Greece is a more risk-prone place in which to invest. The public deficit amounts to 12% of GDP and its public debt is €300bn.
The Greek government’s spending cuts plan has already come under fire from left-wing trade unions. The cuts call for cuts in defence spending, pay and hiring freezes for public sector workers, the shuttering of one in three Greek overseas tourism offices and a 10% reduction in social security spending. The market appeared none to pleased at the news either. Banking shares slid a further 3% yesterday, having already lost 18% in the last month. Greek unemployment has hit a four-year high at 9.3%.
Federal Reserve Keeps Rates On Hold
As promised, the US Federal Reserve has not deviated from its pledged policy of maintaining low interest rates to nurture the fledgling recovery. The US inflation figure for November was a very manageable 0.4%. Federal Reserve Chairman, Ben Bernanke has received the backing of the Senate Banking Committee in his bid to secure a second term.