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2011-09-22 12:48:32
By Kabir Chibber Business reporter, BBC News
Protests in Rome over the austerity cuts, the latest in a series of protests
across Europe
The sovereign debt crisis continues to unfold in Europe, with every country
appearing to get sucked in one by one.
Three nations in the eurozone - the 17 nations that use the euro - have been
recipients of bailouts as attempts to solve the crisis keep stalling.
Italy became the latest to feel the domino effect of the markets when its debt
rating was lowered, the latest in a series of downgrades.
Greece, Spain, the Irish Republic and even Cyprus have also had their ratings
cut this year. The future of the euro is being questioned in a way it never has
since 1999.
Which countries have fallen, and which are feared to be next?
GREECE
The problem: Greece's huge debts, about 340bn euros ( 297bn; $478bn).
In late 2009, after months of speculation and sovereign debt crises in Iceland
and the Middle East, Greece finally admitted its debts were the highest in the
country's modern history.
Since then, a 110bn-euro bailout was passed by the eurozone last year and a
second bailout of roughly the same size was agreed earlier this year - but not
yet passed.
Most observers remain highly sceptical of Greece's ability to ever repay its
huge mountain of debt. Talk persists of an unprecedented default or of Greece
leaving the eurozone.
Because of the interconnectedness of the European economy, this would cause
huge losses for French and German banks.
Thus, though Greece has been bailed out, fears of it running out of money
continue to plague investors.
International credit markets remain wary of Greece because of its sovereign
debt rating.
Ratings: Greece is now considered to be "junk" by the ratings agencies, meaning
it has a very high chance of defaulting. S&P has cut its debt seven times since
2009, from A to CC, the third-lowest rung on its rating scale.
S&P: CC
Moody's: Ca
ITALY
The problem: Italy has the highest total debt in the eurozone, amid stagnant
growth.
CREDIT RATINGS EXPLAINED
A ratings agency is a private-sector firm that assigns credit ratings for
issuers of debt, ranking its likelihood of paying back the money.
This affects the interest rate.
Ratings are divided into investment grade and sub-investment grade, and
borrowers choose according to the level of risk they are willing to accept.
A credit downgrade can make it more expensive for a government to borrow money.
Of the agencies, Standard & Poor's is the oldest, started in 1860 to rate the
finances of US railroads.
What is a ratings agency?
In the summer, the country was charged record levels to borrow, which prompted
renewed calls to pass spending cuts.
The alternative, selling more debt, was unsustainable at rates that reached 6%.
Rome laid out 60bn euros of austerity measures and aims to balance its budget
by 2013, but markets have been concerned over its growing debt load in relation
to GDP - the second-highest behind Greece in the eurozone.
If Italy was to be bailed out, few think that the eurozone (or Germany in
particular) could actually afford it.
But Italy has the advantage of having most of its debt owed to its own people
rather than external investors. This buys it more breathing room than, say,
Greece.
Ratings: Italy was last triple-A in 1995. Since then, its rating has been
fairly stable near the top of the investment grade rankings.
S&P: A
Moody's: Aa2
SPAIN
The problem: The housing boom turned to bust, leaving the country's banks
loaded with bad debt and the highest unemployment rate in the eurozone.
Spain has also seen record borrowing costs recently, forcing its government to
adopt numerous austerity measures to get its finances under control.
Spain, like Italy, is considered too expensive a proposition for the eurozone
to realistically bail out.
This is why the eurozone has tried to help lower its cost of borrowing, rather
than give it loans as it did to its neighbour, Portugal.
Ratings: Last at the highest rating in 1992, the Iberian nation has been cut
twice since 2009.
S&P: AA
Moody's: Aa2
FRANCE
The problem: The country's banks bear a heavy exposure to Greek debt.
While France's public finances have not yet been questioned heavily by the
market, its banks have seen sharp falls on the stock market.
In September, Moody's downgraded Credit Agricole and Societe Generale after
reviewing their exposure to Greek debt.
Credit Agricole and Societe Generale have seen their share prices fall by about
two-thirds since February, while BNP has fallen by more than half.
France has also announced plans to cut spending by 45bn euros over the next
three years.
Ratings: France was given the top rating by Moody's in 1988, and kept it ever
since, despite anaemic growth.
S&P: AAA
Moody's: Aaa
GERMANY
The problem: Most of its neighbours are broke.
Unlike many of its neighbours, Germany enjoyed vigorous economic growth - GDP
rose by 3.6% in 2010. Unemployment is lower than before the 2008 crisis.
And the government plans to cut the budget deficit by a record 80bn euros by
2014.
While that growth has slowed, the main problem is that Europe's largest economy
is the biggest contributor to the bailout fund used to help stricken nations.
And Germany's banks have a heavy exposure to debt from Greece, Europe's biggest
headache.
This means in the event of a Greek default, Germany would probably have to bail
out its own banks.
But having taken the lead in bailing out three nations - Greece twice - how
many more can the country afford?
Ratings: Following reunification, the country was given the highest possible
creditworthiness by S&P in 1992 and Moody's in 1993.
S&P: AAA
Moody's: Aaa
UK
The problem: UK banks have a heavy exposure to Irish debt.
Other than that, the UK has been relatively unscathed, while its eurozone
neighbours endure turmoil.
The coalition government has announced the biggest cuts in state spending since
World War II.
UK gilts are viewed as one of the safest investments in the world, with the
country's borrowing costs falling to recent lows.
But the situation remains precarious. The country's budget deficit was 10.3%
last year - this is just behind Greece, greater than Spain's and more than
triple that of Germany.
Ratings: In 2009, S&P lowered its outlook on British debt to "negative" from
"stable" for the first time since the agency started rating its public finances
in 1978. But the triple-A rating has been affirmed since 1993.
S&P: AAA
Moody's: Aaa
IRISH REPUBLIC
The problem: The country's banking system collapsed.
The country's biggest banks were taken under government control in the
financial crisis and recapitalised. The cost of doing that has been about 70bn
euros.
The Irish received a bailout worth 85bn euros from the eurozone and IMF, then
passed the toughest budget in the nation's history.
Since then, the IMF has said the Irish Republic is "showing signs of
stabilisation" and there is a sense that the worst has now passed.
Ratings: The Irish Republic held the highest triple-A rating as recently as
2001. S&P has cut it five times since 2009.
S&P: BBB+
Moody's: Ba1
PORTUGAL
The problem: A shrinking economy straining its budget.
The country has been the third to get a bailout, worth 78bn euros. The previous
government fell after failing to pass austerity measures, which the subsequent
government had passed.
Investors have since moved on to ongoing worries about Greece, Spain and Italy.
Ratings: Portugal has been cut four times since 2009. It was once triple-A, way
back in 1993.
S&P: BBB-
Moody's: Ba2