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Moody's Downgrades Cyprus Deeper Into Junk

"Our analysis indicates that the debt, despite being at such high levels, is manageable and under the conditions which we describe can be viable," he told reporters.

Moody's said that although there's strong political will among Cyprus' partners in the 17-member group that uses the euro not to repeat the kind of writedown that was allowed for Greece to get its own spiraling debt under control, the sheer size of Cyprus' debt burden will compel the country's authorities to consider such a move.

Cypriot authorities have so far ruled out any such a debt writedown or "haircut," arguing it would do more harm than good because most of Cyprus' debt is held by the country's own banks. A writedown would therefore raise the banks' recapitalization needs â¿¿ and by extension the country's debt â¿¿ even higher.

Euro area countries will deal with Cyprus' bailout during a Jan. 21 meeting.

Last month, ratings agency Standard & Poor's also slapped Cyprus with a two-notch downgrade to CCC+ over similar fears that the country could default on its debts.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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