Greek Finance Minister: no doubt Greece will be able to service debt by May 19

Greece will be in time to service debt by May 19

ATHENS, Greece — Greece’s finance minister says there is no doubt that Greece will be able to service its debt by May 19, when it has euro8.5 billion worth of a 10-year government bond maturing.

George Papaconstantinou’s comment came shortly after credit agency Standard & Poor’s downgraded the heavily indebted country’s credit rating to junk status.

Greece has asked for the activation of a euro45 billion eurozone and International Monetary Fund rescue package, but is still in negotiations over the details. Asked on an evening TV news program whether Greece would be in time before the May 19 deadline, Papaconstantinou said: “absolutely and without any doubt.”

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

ATHENS (AP) — Europe’s government debt crisis worsened ominously Tuesday when Greece’s credit rating was downgraded to junk status and Portugal’s debt was lowered on fears the trouble could spread. Stocks slid on the news.

The Portuguese downgrade was a sign the European Union’s fears of that the debt crisis would spread beyond Greece — and further undermine the euro currency — might be coming true.

For its part, Greece has already admitted it can’t pay debts coming due shortly and reached for a bailout. But the reluctance of the largest country using the euro — Germany — to fund the largest share of the euro45 billion rescue by European government and the International Monetary Fund is sending shudders through markets.

Investors fear the money may not reach Greece to enable it to avoid default by May 19, when euro8.5 billion in bond payments come due.

The FTSE 100 index of leading British shares closed down 2.6 percent, Germany’s DAX slid 2.7 percent and the French CAC-40 in France ended 3.8 percent lower. On Wall Street, the Dow Jones industrial average was down 132.25 points, or 1.2 percent, at 11,072.78 around midday New York time while the broader Standard & Poor’s 500 index tumbled 18.17 points, or 1.5 percent, at 1,193.34.

Greek and Portuguese share were pounded, down 6.7 percent and 5.4 percent. The interest rate gap, or spread, between Portuguese and benchmark German 10-year bonds trading on financial markets — a key indicator of market skepticism — rose 57 basis points, or more than half a percentage point, to hit 5.86 percentage points. The higher the gap, the less confidence in Portugal — and it was the widest gap since the shared euro currency, which Portugal and 15 other nations use, came into circulation.

Both governments have imposed budget cutbacks against political resistance from unions at home. Markets have been skeptical that they can push through enough cuts, given political resistance, to put their finances in order.

Greek government spokesman Giorgos Petalotis, speaking to AP after news of downgrade, said, “This shows that the problem is broader, and concerns all the other countries and not just Greece. As a country, we are doing everything necessary to overcome this difficult situation — we are taking the measures and decisions that have been asked of us for sometime now.”

Asked if the downgrade news means bailout negotiations need to be speeded up, Petalotis answered, “I think the need to them speed up, is something everyone can assess.”

Portugal’s finance minister said the downgrade would only make things worse.

“This is a decisive moment,” Finance Minister Fernando Teixeira dos Santos said in a statement, urging political parties in opposition to his minority Socialist government to help swiftly enact debt-reduction measures he has outlined in his austerity plan.

“Regardless of the opinion we have in relation to the fairness and update of the rating, the fact is that this decision will not help markets to calm down, but will, on the contrary, contribute for their turbulence,” Teixeira dos Santos said.

The spreading trouble threaten more woes for the shared euro currency, and raise the possibility of trouble spreading even further to Spain, whose economy is far larger than that of Greece or Portugal. Eurozone governments, themselves facing higher debt levels from the global recession, would be hard pressed to find enough money to bail out Spain if it comes to that.

The crisis has highlighted the inability of the rules set up to support the euro to keep governments from undermining the currency by running up big debts. Those rules limited deficits to 3 percent of grosse domestic product but have been widely flouted, and EU officials are talking about ways to strengthen them.

Nicholas Skourias, chief investment officer at Pegasus Securities, said that markets were already pricing in a Greek default or restructuring, while rising spreads on Portuguese bonds showed that “the more important and main risk is the contagion effect. And I think that the Germans do not realize this risk.”

Germany wants to see a commitment to deep, long-term cutbacks in Greek government services and benefits before it agrees to provide its euro8.4 billion euro of the bailout cash. But investors remain highly skeptical that Greek voters used to generous benefits and worker protections will accept a drop in living standards. They also worry that the proposed bailout will not cure Greece’s long-term imbalance between its soaring debt and tepid prospects of economic growth.

“The downgrade results from our updated assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory,” said Standard & Poor’s credit analyst Marko Mrsnik.

The move deprives Greece of an investment-grade rating on its bonds, meaning it would pay higher costs to borrow if it taps debt markets again. The agency said Greece’s weak long-term growth prospects made it less credit-worthy.

“The Greek bond market is now in full scale meltdown,” said Jeremy Batstone-Carr, head of private client research at stockbrokers Charles Stanley. “The nightmare scenario from an investor stand point is that either Greece defaults, forcing investors to take a severe ‘haircut’ on their investments-loans, or the Greek authorities could honor the country’s debts and simply shut down all nonessential operations, markedly escalating the strife for the nation’s people.”

Default would hurt the shared euro currency and could lead to the debt crisis spreading to other countries with shaky finances such as Portugal and Spain, threatening them with the same vicious spiral of default fears leading to higher rates.

A debt downgrade immediately preceded Greece’s call for the bailout last week. While Portugal has less debt, economists have focused on it as the next possible victim if concerns over high levels of government debt in Europe spread. Standard & Poor’s downgraded its credit rating on Portugal amid mounting concerns about the country’s ability to get a handle on its debt load, saying that the two-notch downgrade to A- reflects its view of “the amplified risks Portugal faces.”

Greek company shares plunged for a fifth straight session Tuesday, with the benchmark Athens stock index shedding 6.75 percent to reach 1,683.08 points in late afternoon trading. The message from the markets is clear — there are real doubts that Athens will be able to service its debts.

“The market is pricing in the realistic prospect that Greece may not be in a position to meet all its debt obligations,” said Jane Foley, research director at Forex.com.

Athens now faces a long, nail-biting wait with far from guaranteed results before its mid-May payment date.

“Until that day, everything must be concluded,” Finance Minister George Papaconstantinou said. “I have absolutely no doubt that we will get there.”

Prime Minister George Papandreou said his country stood “naked before international market storms.”

“We are going through Greece’s hardest time in recent decades,” Papandreou told his Socialist party lawmakers. “The challenges our country faces are unprecedented, not only for Greece, but also for Europe and even the world economy. … And what I say is no exaggeration.”