Cyprus blasts S&P downgrade as "arbitrary"

Cyprus Finance Minister Kikis Kazamias (file photo)  Cyprus reacted angrily on Saturday to Standard and Poor's downgrade of its credit rating into junk territory, accusing the ratings agency of high-handed behavior that ignored the island's moves to reduce its deficit and improve its finances.   "This decision can justifiably be considered arbitrary and unsubstantiated," finance minister Kikis Kazamias told reporters. S&P cut Cyprus, the third-smallest country in the eurozone, to BB+.   Standard and Poor's said the downgrade reflected its opinion that Cypriot financial institutions have a significant exposure to indebted Greece as well as the effects of the crisis in the eurozone.   Among eurozone sovereign states, Cyprus, Greece and Portugal now have S&P ratings below investment grade. S&P downgraded the ratings of nine eurozone countries in total on Friday, including France which lost its coveted AAA rating.   Kazamias openly questioned whether the agency "served other expediencies" and said the move ignored the fact that the European Commission had recently given plaudits to Cyprus for tackling its deficit levels.   "This agency also ignored, totally arbitrarily, the fact that the Republic of Cyprus is one of a few countries that has fully covered its financing requirements for 2012," Kazamias said.   "With such behaviour, Cyprus is essentially paying for the juxtaposition, in my personal view, which exists between the dollar and the euro," he said.   The island has adopted several austerity packages to cut high government deficits. A budget passed by parliament in December projected a deficit of no more than 2.5 percent of GDP this year compared with about 6.0 percent in 2011.   But due to fiscal slippage and exposure of its banking sector to Greece, which triggered earlier rating cuts, Cyprus has been shut out of international capital markets since last May, with yields on its debt trading at above 10 percent.   It recently clinched a 2.5 billion euro loan from ally Russia, which authorities say will cover its financing needs this year.   Cyprus's two largest banks, Bank of Cyprus and Marfin Popular, are exposed to Greek sovereign debt. Both banks are due to give the national regulator their plans for recapitalisation by Jan. 20. (Reuters)