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Side-effects from S&P downgrading

22/11/2010 08:19
The downgrading of the island’s economy by Standard and Poor’s caused a stir in the “inside”, with the opposition asking to know why the credit rate agency related the downgrading to the banks instead of the public finances. Averof Neophytou talked about a possible misleading of the firm by the Finance Ministry, while the government referred to an insult of the institutions.

On Wednesday, Standard and Poor’s downgraded Cyprus by a notch from A+ to A due to the size and the risks of the banking system.

Moody’s had kept the same stance in July, when they had downgraded the two biggest banks and confirmed the negative outlook of the banking ratings few weeks ago.

Cyprus was placed under negative outlook by S&P in July for the course of its public finances and the risks of the banking sector.

In its report released on Wednesday, the agency believes that the state budget 2011 is a significant first step towards fiscal consolidation and adopted the Ministry’s forecasts for the fiscal deficit in 2010 and 2011.

In an interview to newspaper “Phileleftheros” yesterday, Mr. Neophytou wondered why the firm focused on the banking sector.

“We were under supervision due to the deficits. Warnings for downgrading had to do with the course of the public finances. Finally, it turned that the issue was the banks”, he said.

“Our downgrading by S&P was certain and in fact the Finance Minister had two meetings with Standard and Poor’s in London before the final downgrading. I believe that he tried to avoid downgrading. It was a good decision to try in the last minute to avoid downgrading. Now, how can the problem be the banks and not the fiscal deficit, this is a question”, he said.

Mr. Neophytou stressed that the firm does not asses the Cypriot banks.

Responding to DISY Vice President yesterday, the government spokesman said that the hint for a fraud is an insult.

“If Mr. Neophytou disagrees with the agency, he should tell them so and not trying to impose his view that the government deceived Standard and Poor’s. This is an insult”, he said.

“And let’s say that we managed to deceive Standard and Poor’s. Did we manage to do the same with the IMF too? Eurostat? The European Commission? This has to stop”, he stressed.

“When the numbers and the reports suit him they are acceptable. When they don’t, it is the government’s fault. Will this ever stop?”, he concluded.