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Greece Downgraded From Developed Country Thanks To Economic Woes

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"Greece Downgraded From Developed Country Thanks To Economic Woes"

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Late on Tuesday evening, MSCI Inc., an investment index provider, announced that it was moving Greece from its “Developed Markets” index to “Emerging Markets.” That is the first time the company has downgraded a country from developed to emerging market since it launched the emerging markets index in 1987, according to the Wall Street Journal.

The company cited Greece’s failure to meet multiple criteria for the developed market index, including the fact that the Greek market was smaller than the minimum requirement for two years. The Journal reports that the country’s stock market staged a rally last year and the start of this year but has since seen a sell off as investors seek less risky assets. The FTSE Greece index has fallen by almost 5 percent in the last month.

Greece’s economy has been struggling under steep austerity measures as it tries to meet debt limits set by the European Union. The country’s unemployment rate has been pushed above 25 percent thanks to spending cuts and tax hikes meant to meet the requirements for a bailout. Its economy contracted by 18.4 percent between 2008 and 2012, putting it in depression territory.

In the wake of this devastation, the International Monetary Fund has admitted that it was mistaken in its estimation of the impact that austerity would have on the Greek economy, misjudging how bad the pain would be. European leaders are also backing off of calls for austerity, giving some countries a reprieve from some of the requirements to cut spending.

The United States initially avoided the call to austerity, enacting stimulus that gave the economy a needed boost. But it has since reversed course and enacted trillions in spending cuts, the latest of which, sequestration, is already cutting into economic growth.

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