LONDON (SHARECAST) - Cyprus was downgraded on Wednesday by Standard & Poor's (S&P) and driven deeper into 'junk' status.
The US rating agency downgraded the country's sovereign debt rating by three notches from 'BB' to 'B'.
Cyprus, the small island off the coast of Greece and Turkey, is not to be forgotten. It too is in the grips of a crisis and like Spain is in bailout talks with the European Union.
S&P has Cyprus under watch for further downgrade, citing passive politics as the government's austerity package remains pending since July.
"The downgrade reflects our view that Cyprus's creditworthiness has deteriorated since the last downgrade on August 2, 2012, as the government has not yet negotiated a support package, while external and fiscal risks have risen," the agency said in a statement.
"We believe that electoral considerations ahead of the presidential poll, scheduled for February of 2013, have contributed to policy inertia."
Cyprus government sources say that it needs a bailout package by mid-November at the latest. However, there are discrepancies over the country's financing needs. It is speculated that it needs €10bn.
Cyprus is expected to begin conversations with the 'Troika' (International Monetary Fund, European Central Bank, European Union) next week and Finance Minister Vassos Shairly is confident that a deal will be reached.