Policy options on Greece narrowing
By Ingrid Melander and Paul Taylor |
May 25, 2011, Wednesday
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Print Edition
Print Edition
EUROPE'S policy options to manage Greece's debt crisis are narrowing fast with the European Central Bank and credit ratings agencies warning against even a voluntary debt restructuring and Athens highlighting the risk of an imminent default unless it gets more European Union money.
Moody's became the latest ratings agency yesterday to warn of a chain reaction of severe consequences for the 17-nation euro area if Greece was allowed to default next month, when it faces a 13.4 billion euro (US$18.87 billion) funding crunch.
Greece launched a stalled privatization program and promised tougher austerity measures and tax hikes on Monday to meet EU and International Monetary Fund conditions for the release of a 12 billion euro loan tranche in June, crucial to keep Athens afloat.
"A Greek default would be highly destabilizing and would have implications for the creditworthiness of issuers across Europe," Moody's chief credit officer for EMEA, Alastair Wilson, said.
Other stressed euro zone sovereigns could be downgraded from investment grade to junk as a result, he said, widening the gap with the currency bloc's strongest borrowers. Portugal and Ireland would be first in the firing line.
Crucially, the ECB and ratings agencies have told politicians that options they are exploring to lengthen the maturities on privately held Greek debt would be interpreted as a default-like "credit event," fueling further downgrades and disqualifying Greek bonds as collateral.
A Greek default could take many forms, including changes in the terms and conditions or a selective reprofiling, Moody's said.
Finance Minister George Papaconstantinou raised the stakes on Monday evening, saying the IMF would not release its share of the June aid payment unless the EU undertakes to cover Athens' 2012 funding needs.
"The IMF has made absolutely clear that it cannot disburse if it does not have any guarantee that next year, if necessary, Greece will have (funding) support from the Europeans," he told Skai TV.
The ECB stepped up its campaign against any restructuring, which has become more shrill since the chairman of eurozone finance ministers, Jean-Claude Juncker, said last week the EU was exploring some form of "soft restructuring."
The Dutch newspaper Het Financieele Dagblad reported yesterday that euro zone states had secretly started preparing for an extension of the maturity of Greek debt and creating an independent trustee to sell Greek state assets.
Moody's became the latest ratings agency yesterday to warn of a chain reaction of severe consequences for the 17-nation euro area if Greece was allowed to default next month, when it faces a 13.4 billion euro (US$18.87 billion) funding crunch.
Greece launched a stalled privatization program and promised tougher austerity measures and tax hikes on Monday to meet EU and International Monetary Fund conditions for the release of a 12 billion euro loan tranche in June, crucial to keep Athens afloat.
"A Greek default would be highly destabilizing and would have implications for the creditworthiness of issuers across Europe," Moody's chief credit officer for EMEA, Alastair Wilson, said.
Other stressed euro zone sovereigns could be downgraded from investment grade to junk as a result, he said, widening the gap with the currency bloc's strongest borrowers. Portugal and Ireland would be first in the firing line.
Crucially, the ECB and ratings agencies have told politicians that options they are exploring to lengthen the maturities on privately held Greek debt would be interpreted as a default-like "credit event," fueling further downgrades and disqualifying Greek bonds as collateral.
A Greek default could take many forms, including changes in the terms and conditions or a selective reprofiling, Moody's said.
Finance Minister George Papaconstantinou raised the stakes on Monday evening, saying the IMF would not release its share of the June aid payment unless the EU undertakes to cover Athens' 2012 funding needs.
"The IMF has made absolutely clear that it cannot disburse if it does not have any guarantee that next year, if necessary, Greece will have (funding) support from the Europeans," he told Skai TV.
The ECB stepped up its campaign against any restructuring, which has become more shrill since the chairman of eurozone finance ministers, Jean-Claude Juncker, said last week the EU was exploring some form of "soft restructuring."
The Dutch newspaper Het Financieele Dagblad reported yesterday that euro zone states had secretly started preparing for an extension of the maturity of Greek debt and creating an independent trustee to sell Greek state assets.
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