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Fitch has given the UK a negative outlook, becoming the second ratings agency to put the treasured AAA rating at risk after Moody's made the same move last month.

The credit agency announced its decision yesterday, warning that the UK had "very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery".

This move means there is a "slightly greater than 50% chance" that Britain will lose its AAA rating with Fitch in the next two years.

The global economic crisis, prolonged by strains within the euro area, has put millions of youth out of work—50 percent in Spain and Greece and 30 percent in Portugal and Italy. It threatens to spawn a “lost generation” that may find it hard to recover, and it is likely to exact a harsh human toll for years to come.

The young are naturally resilient and tend to have fewer dependents than older generations. But those who are out of a job for a long time often see their self-confidence and skills erode and lose their attachment to the labor force (see “The Tragedy of Unemployment,” in the December 2010 issue of F&D). They can become disheartened, disempowered, and disconnected from established institutions (see “Voices of Youth,” in this issue of F&D).

Yet clearly, in the long run, it is today’s young people who will face the task of creating economic success and human security.

Greece announced Friday that its private-sector creditors will take part in a historic restructuring of the government's debt, setting the stage for the nation to secure more bail-out money and skirt a messy default.

Investors agreed to restructure €172 billion worth of Greek bonds, which represents 85.5% of the total €206 billion held by the private sector, according to the Greek finance ministry. Another 69% of investors who own Greek bonds not issued under Greek law agreed to restructure roughly €20 billion.

Under the terms of the restructuring, bondholders stand to lose up to 75% of their investment by writing down the value of Greek bonds by 53.3% and exchanging the debt for securities with a lower interest rate.

Portugal is the prime one. Estimates of interest rates and economic growth from the International Monetary Fund suggest that, in order to keep its debt burden stable, the government would need to run a primary budget surplus (excluding debt payments) of nearly 2 percent of gross domestic product — a feat it has achieved in only three of the past 17 years. If it wrote down its debts by 40 percent, the required surplus would be a much more manageable 1 percent of GDP. Markets seem amply prepared for such an outcome: As of Friday, Portugal’s 10-year bonds were trading at a 47 percent discount to face value.

In the short term, The "Giants" are shocked into a daze by "their relatives."

In the long term, The "Patients" need to work hard.

European Debt Crisis Update

1. ECB said it “has decided to temporarily suspend the eligibility of marketable debt instruments issued or fully guaranteed by the Hellenic Republic for use as collateral in Eurosystem monetary policy operations”. This announcement came soon after the rating agency Standard and Poor’s cut Greece’s credit rating to “selective default”. This news however doesn’t seem to take the financial community by surprise as the Euro only slightly declined yesterday.

2. In Germany, Merkel won the preliminary vote to approve the Greek bailout package.

As of 03:51:00 ET on 03/01/2012.

The rates are comprised of Generic German government bonds. The underlying benchmark bonds are located under {YCGT0016 DES} 2 for "Members". These yields are based on the bid side of the market.

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Greece has been struggling to avoid a default for over two years as the nation's economy has sunk deeper into recession and the government has been shut out of the bond market.

To qualify for its second bailout, Greece is scrambling to enact a series of austerity measures linked to its initial 2010 rescue and has pledged to undertake structural reforms to make its economy more competitive.

On Monday, German lawmakers approved the second rescue package for Greece, which is deeply unpopular in Germany.

Below are the IMF’s projections of of debt-to-GDP ratios for 2012:

France

• Debt/G.D.P.: 81.7%
• Unemployment, Oct. 2011: 9.8%
• S. & P. Rating: AA+

Germany

• Debt/G.D.P.: 83.2%
• Unemployment, Oct. 2011: 5.5%
• S. & P. Rating: AAA

Greece (Updated)

Eurozone economy shrinks

Greece has also hammered out a plan to write down €100 billion euros worth of Greek government bonds and swap existing debt for securities with lower interest rates, a deal that would result in losses of up to 70% for the private sector.

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The results of EU stress tests on 91 banks were published on Friday. Seven of them failed

The European debt crisis can easily feel like an unwieldy, unmanageable mess of complex jargon and financial terms. Here’s Wonkblog’s explanation of what’s happening across the Atlantic Ocean with the help of eight key graphs:

The place to start with the European debt crisis is, well, with European debt. Put simply, the crisis in the euro zone is that the market doesn’t trust that Greece, Italy, Spain, Ireland and Portugal can pay back their debts, and so they don’t want to lend them more money except at exorbitant rates.

But to understand how Europe got into this mess, how countries like Greece managed to borrow so much money that they couldn’t pay it all back, you need to see this graph from the Organization for Economic Development and Cooperation (OECD). On the right side, you’re seeing the story everyone already knows: The market is charging Southern European countries a lot to borrow. But look at the left side. As recently as 2008, the market was lending to Greece and Germany at pretty much the exact same price. The assumption was that the euro could never break up, and thus everyone in it was as safe a bet as the safest, biggest economy on the euro: Germany.

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