Stock prices around the world have fallen following a decision by Standard & Poor's, one of the world's leading credit-rating agencies, to cut the status of Greece's government bonds to the level of "junk."
This means Standard & Poor's believes there is a serious risk that Greece could default on its international debt repayments.
That caused near panic among investors, and stock markets fell markedly on April 27 in Europe, North America, and Asia. The New York Stock Exchange suffered its worst day in nearly three months. In early trading today, European markets remained depressed, falling further.
At the same time, Standard & Poor's reduced by two points the credit rating of debt-burdened Portugal, another troubled eurozone member. This reinforced the perception that the crisis is spreading to other economically weak members of the European Union's 16-nation eurozone. In addition to Portugal, the list of potentially vulnerable states includes Ireland, Spain, and Italy.
The euro common currency is also affected, suffering its biggest one-day fall against the dollar in a year. 'Death Spiral'
The mood was not improved by dire predictions from even the most sober of sources, namely Deutsche Bank's chief economist Thomas Mayer, who is quoted by Reuters as saying that Greece has entered "a death spiral of government insolvency."
Greek Finance Minister George Papaconstantinou energetically rejected the gloom in remarks in an interview on Greek television, referring to the prospect of imminent multibillion euro loans from the EU and International Monetary Fund (IMF).
"It is clear that this downgrade does not reflect the true state of the economy or the fiscal situation or the negotiations in progress or the absolutely realistic prospect in front of us of concluding the EU-IMF talks successfully over the coming days," he said.
Herman Van Rompuy: "Well on track."
And European Union President Herman Van Rompuy, speaking today to reporters in Tokyo, kept his usual calm tone to try to smoothe the troubled waters. He announced that an emergency summit of leaders from the 16 eurozone nations would take place around May 10. But he added that talks on the Greek debt were proceeding normally.
"Negotiations are going on; they are well on track," he said. "And there is no question about restructuring of the [Greek] debt."
Jose Manuel Barroso, the head of the European Commission, said today that EU members and the European Central Bank are "determined to guarantee stability" of the eurozone.
At stake is a 45-billion-euro loan package, the bulk of which is to be supplied by eurozone members. But Germany, the biggest contributor, is holding out. There is strong public opposition in Germany to a bailout for Greece. And Chancellor Angela Merkel, whose party faces a key state election on May 9, insists that before any money is transferred, Athens must outline a multiyear program of cuts that will make clear how Greece intends to meet its financial obligations in the future.Long, Hard Road
German Foreign Minister Guido Westerwelle has expressed the widespread skepticism that Germans have toward the steadfastness of Greece's will to really reform. He has said that loans made without prior commitments from Athens mean that the Greeks will not "do their homework" with due diligence and discipline.
IMF head Dominique Strauss-Kahn and European Central Bank President Jean-Claude Trichet are due in Berlin today to try to persuade Germany to quickly release the money.
Now, many economists wonder whether the 45 billion, even if it is agreed, will suffice.
Analysts warn that Greece has a long road to follow, even under the best circumstances. Beta Securities chief analyst Vassilis Valastarakis pointed out the figures in remarks in Athens to Reuters television.
"For the next five years we have to refinance above 150 billion [euros] plus 90 billion interest," he said, "so the markets know that this is not an easy task. And of course the rating agency has downgraded the Greek debt, as you saw, to junk."
In all, Greece is estimated to be some 300 billion euros in debt.