As the Greek financial crisis continues to occupy the headlines, economists are fearing a domino effect throughout Europe, especially after today’s decision by the credit rating agency Standard and Poor to downgrade Spain’s credit rating from AAA to AA.
This move came just one day after Greece’s credit rating was similarly adjusted and the euro fell sharply and the interest rates European governments pay to borrow money jumped after Standard and Poor’s decision to downgrade Spain.
S&P also gave a negative outlook for Spain and warned that the country could remain in a slump until 2016.
There are also fears that the UK could also have its credit rating downgraded, which would prompt a rise in interest rates and the possible need for bailing out by the International Monetary Fund. As the UK’s debt is far higher than that of either Greece or Spain, there are many who are baffled as to why this has not already happened.
Greece retains the option of defaulting on its debt rather than introducing further austerity measures but this would almost certainly bring down Europe’s banks who have been purchasing Greek debt due to the high yield.