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Greece, Portugal Face New Credit Warning

A traffic policeman tries to stop public transport employees as they ride on motorcycles during a protest in Athens, Feb 11, 2011

A leading financial services company says it could further downgrade the credit standing of Greece and Portugal as the two countries struggle to control the finances of their debt-ridden governments.

Standard & Poor's said Wednesday it is keeping both nations on a credit watch with "negative implications." The credit-rating firm said it is watching to see whether European leaders later this month reshape the continent's mechanism to bail out governments with large debts.

Greece accepted a $146 billion bailout last year from other European countries, while Ireland took $113 billion in outside aid. Portugal might be next to seek international assistance, although its leaders have vowed that would not be necessary.

Countries with lower credit ratings are forced to pay substantially higher costs to borrow money to finance government operations. That makes it even more difficult to erase debt problems. Germany has Europe's strongest economy and its bonds carry the lowest interest rate, about 3 percent. By contrast, debt-burdened Greece pays 12 percent.

Some financial analysts and European government leaders think Spain might also have to seek international financial aid. Spain, Ireland and Greece are the only three of the 27 European Union nations that had shrinking economies last year.

Spain has the highest unemployment rate in the industrialized world, more than 20 percent. Its jobless rate hit a 15-year high in February. As more unemployed workers seek unemployment compensation, it further squeezes government spending for other programs.