The Domino Effect in Europe

Protests in Rome continue over austerity cuts

The sovereign debt crisis continues to unfold in Europe, with every country appearing to get sucked in.  In October European leaders reached another deal to try to stop the contagion. But which countries are most at risk and why? Three nations in the eurozone - the 17 nations that use the euro - have been recipients of bailouts as attempts to solve the crisis keep stalling.

Italy became the latest to feel the domino effect of the markets when its debt rating was lowered, the latest in a series of downgrades. Greece, Spain, the Irish Republic and even Cyprus have also had their ratings cut this year. The future of the euro is being questioned in a way it never has since 1999.
Which countries have fallen, and which are feared to be next?
GREECE
The problem: Greece's huge debts, about 340bn euros (£297bn; $478bn).
In late 2009, after months of speculation and sovereign debt crises in Iceland and the Middle East, Greece finally admitted its debts were the highest in the country's modern history. Since then, a 110bn-euro bailout was passed by the eurozone last year and a second bailout of roughly the same size was agreed earlier this year - but not yet passed.

Most observers remain highly sceptical of Greece's ability to ever repay its huge mountain of debt. Talk persists of an unprecedented default or of Greece leaving the eurozone. Because of the interconnectedness of the European economy, this would cause huge losses for French and German banks.  Thus, though Greece has been bailed out, fears of it running out of money continue to plague investors.International credit markets remain wary of Greece because of its sovereign debt rating.
Ratings: Greece is now considered to be "junk" by the ratings agencies, meaning it has a very high chance of defaulting. S&P has cut its debt seven times since 2009, from A to CC, the third-lowest rung on its rating scale.
ITALY
The problem: Italy has the highest total debt in the eurozone, amid stagnant growth. In the summer, the country was charged record levels to borrow, which prompted renewed calls to pass spending cuts.  The alternative, selling more debt, was unsustainable at rates that reached 6%.
Rome laid out 60bn euros of austerity measures and aims to balance its budget by 2013, but markets have been concerned over its growing debt load in relation to GDP - the second-highest behind Greece in the eurozone.
If Italy was to be bailed out, few think that the eurozone (or Germany in particular) could actually afford it. But Italy has the advantage of having most of its debt owed to its own people rather than external investors. This buys it more breathing room than, say, Greece.
Ratings: Italy was last triple-A in 1995. Since then, its rating has been fairly stable near the top of the investment grade rankings.
SPAIN
The problem: The housing boom turned to bust, leaving the country's banks loaded with bad debt and the highest unemployment rate in the eurozone. Spain has also seen record borrowing costs recently, forcing its government to adopt numerous austerity measures to get its finances under control. Spain, like Italy, is considered too expensive a proposition for the eurozone to realistically bail out.
This is why the eurozone has tried to help lower its cost of borrowing, rather than give it loans as it did to its neighbour, Portugal.
Ratings: Last at the highest rating in 1992, the Iberian nation has been cut twice since 2009.
FRANCE
The problem: The country's banks bear a heavy exposure to Greek debt. While France's public finances have not yet been questioned heavily by the market, its banks have seen sharp falls on the stock market. In September, Moody's downgraded Credit Agricole and Societe Generale after reviewing their exposure to Greek debt.
Credit Agricole and Societe Generale have seen their share prices fall by about two-thirds since February, while BNP has fallen by more than half. France has also announced plans to cut spending by 45bn euros over the next three years.
Ratings: France was given the top rating by Moody's in 1988, and kept it ever since, despite anaemic growth.
GERMANY
The problem: Most of its neighbours are broke.
Unlike many of its neighbours, Germany enjoyed vigorous economic growth - GDP rose by 3.6% in 2010. Unemployment is lower than before the 2008 crisis. And the government plans to cut the budget deficit by a record 80bn euros by 2014.
While that growth has slowed, the main problem is that Europe's largest economy is the biggest contributor to the bailout fund used to help stricken nations. And Germany's banks have a heavy exposure to debt from Greece, Europe's biggest headache.
This means in the event of a Greek default, Germany would probably have to bail out its own banks. But having taken the lead in bailing out three nations - Greece twice - how many more can the country afford?
Ratings: Following reunification, the country was given the highest possible creditworthiness by S&P in 1992 and Moody's in 1993.
UK
The problem: UK banks have a heavy exposure to Irish debt. Other than that, the UK has been relatively unscathed, while its eurozone neighbours endure turmoil. The coalition government has announced the biggest cuts in state spending since World War II.
UK gilts are viewed as one of the safest investments in the world, with the country's borrowing costs falling to recent lows.  But the situation remains precarious. The country's budget deficit was 10.3% last year - this is just behind Greece, greater than Spain's and more than triple that of Germany.
Ratings: In 2009, S&P lowered its outlook on British debt to "negative" from "stable" for the first time since the agency started rating its public finances in 1978. But the triple-A rating has been affirmed since 1993.
IRISH REPUBLIC
The problem: The country's banking system collapsed.
The country's biggest banks were taken under government control in the financial crisis and recapitalised. The cost of doing that has been about 70bn euros. The Irish received a bailout worth 85bn euros from the eurozone and IMF, then passed the toughest budget in the nation's history.
Since then, the IMF has said the Irish Republic is "showing signs of stabilisation" and there is a sense that the worst has now passed.
Ratings: The Irish Republic held the highest triple-A rating as recently as 2001. S&P has cut it five times since 2009.
PORTUGAL
The problem: A shrinking economy straining its budget. The country has been the third to get a bailout, worth 78bn euros. The previous government fell after failing to pass austerity measures, which the subsequent government had passed. Investors have since moved on to ongoing worries about Greece, Spain and Italy.
Ratings: Portugal has been cut four times since 2009. It was once triple-A, way back in 1993.

CREDIT RATINGS EXPLAINED

A ratings agency is a private-sector firm that assigns credit ratings for issuers of debt, ranking its likelihood of paying back the money.
This affects the interest rate.
Ratings are divided into investment grade and sub-investment grade, and borrowers choose according to the level of risk they are willing to accept.
A credit downgrade can make it more expensive for a government to borrow money.
Of the agencies, Standard & Poor's is the oldest, started in 1860 to rate the finances of US railroads.