Greece on its own: no bail out from the European central bank
Two leading Greek banks, Eurobank and Alphabank, have had their credit ratings downgraded by ratings agency Standard and Poor's while the European Central Bank said there will be no bail out for debt-stricken member states.
The ratings agency also put Greece's biggest private bank, National Bank of Greece, and fifth largest bank, Piraeus Bank, under negative watch.
The move comes just days after Standard and Poor's cut the country's credit rating.
Greece's public debt stands at 300bn euros ($431bn; £266bn).
The Greek government recently unveiled measures to try to trim its debts, including a 10% cut in public spending.
It has also vowed to tackle corruption and excessive red tape.
At the beginning of December, fellow ratings agency Fitch downgraded Greece.
A credit rating cut indicates to global investors that a country is a more risk-prone place in which to invest.
In a statement detailing the downgrading of the banks, Standard and Poor's said: These institutions are exposed to the current capital-market turmoil.
Greek banks are directly exposed to the sovereign's deteriorating credit quality through their large Greek government debt portfolios.
Meanwhile the European Central Bank said it will not bail out debt-stricken member states such as Greece, which must repair its public finances on its own.
One has to be very clear: The ECB has no mandate or intention to take into account the situation of a specific country, especially not with regard to public finances said ECB governing council member Ewald Nowotny.
However Nowotny, head of the Austrian central bank, defended Austria's recent major bank bailout. The emergency nationalization of Hypo Group Alpe Adria contributed to jitters in European markets last week. Mr. Nowotny said that bailout didn't mean Austria's banks as a whole were in a similar condition.
The ECB said Friday that it expected banks in the euro zone to see much higher losses than it had previously thought, mainly from their exposure to Eastern Europe and commercial real estate.
A number of euro-zone banks, including nearly all in Austria and Italy's UniCredit, expanded into Eastern Europe in the past decade. Loan and currency losses have sharply eroded the value of those investments.
Nowotny's declaration that Greece wouldn't get a bailout was matched by a prediction that Greece would be able to avoid insolvency and won't require outside help. Our baseline scenario is that the Greek government will be able to fulfill its promises,” he said.
Greece has promised to reverse a severe slide in its finances. Right now, it is on track to report a fiscal deficit equal to 12.7% of gross domestic product for 2009, well above the European Union-mandated ceiling of 3% of GDP. This weekend the Greek parliament began five days of debate on the government's 2010 austerity budget, which aims to narrow the gap to 9.1% of GDP next year.
The ECB's updated loss estimates for all bank loans and securities -- which the ECB put at Euro 553 billion (800 billion USD) for 2007 to 2010 -- highlight the fragility of the currency bloc's recovery. Much of the projected losses have already been absorbed, the ECB said in its report Friday on the financial system.
Of the total Euro 553 billion estimate, banks could face Euro 187 billion in additional write-downs before 2011. The revised figures put the ECB closer in line with the International Monetary Fund, which early this year projected a worse effect on banks.