S&P warns of a default in Greece
Source: Agencies |
July 5, 2011, Tuesday
|
Print Edition
Print Edition
A leading credit ratings agency warned yesterday that Greece would be considered to be in default if banks rolled over their holdings in the country's debt as proposed by a French plan.
Standard & Poor's said in a statement that two proposals by an association of French banks "would likely amount to a default" under its criteria because both options offer "less value than the promise of the original securities."
Analysts warned the S&P's position could wreak havoc on Europe's attempts to deal with the Greek debt crisis, especially if rivals Moody's and Fitch come to the same conclusion. A so-called "selective default" could trigger massive insurance claims on Greek bonds, likely triggering another bout of turmoil in the financial markets.
"A default is exactly what the European politicians want to avoid," said Louise Cooper, markets analyst at BGC Partners. "I imagine there are a lot of phone calls being made between the European political elite and the bosses at S&P."
The French Finance Ministry and leading French holders of Greek sovereign debt - banks BNP Paribas and Credit Agricole - would not comment on the S&P warning.
S&P's statement comes just a week after French banks said they were ready to help Greece by accepting a significant debt rollover. Germany's banks later said they were also considering helping out on similar terms as the French plan.
One proposal involved them reinvesting at least 70 percent of their proceeds of maturing Greek government bonds in newly issued 30-year Greek bonds, backed up by high quality debt from other countries. The interest rate would be linked to Greece's economic growth and their trading would be restricted.
A second option being considered would see French financial institutions investing at least 90 percent of the proceeds of expiring Greek bonds in newly issued five-year bonds. There would again be restrictions on their trading and the bonds would have the same interest rate formula as the 30-year issue.
The proposals received a fair degree of support, including from French President Nicolas Sarkozy.
Policy makers across the eurozone are trying to come up with a second bailout for Greece that involves some involvement by the private sector.
Standard & Poor's said in a statement that two proposals by an association of French banks "would likely amount to a default" under its criteria because both options offer "less value than the promise of the original securities."
Analysts warned the S&P's position could wreak havoc on Europe's attempts to deal with the Greek debt crisis, especially if rivals Moody's and Fitch come to the same conclusion. A so-called "selective default" could trigger massive insurance claims on Greek bonds, likely triggering another bout of turmoil in the financial markets.
"A default is exactly what the European politicians want to avoid," said Louise Cooper, markets analyst at BGC Partners. "I imagine there are a lot of phone calls being made between the European political elite and the bosses at S&P."
The French Finance Ministry and leading French holders of Greek sovereign debt - banks BNP Paribas and Credit Agricole - would not comment on the S&P warning.
S&P's statement comes just a week after French banks said they were ready to help Greece by accepting a significant debt rollover. Germany's banks later said they were also considering helping out on similar terms as the French plan.
One proposal involved them reinvesting at least 70 percent of their proceeds of maturing Greek government bonds in newly issued 30-year Greek bonds, backed up by high quality debt from other countries. The interest rate would be linked to Greece's economic growth and their trading would be restricted.
A second option being considered would see French financial institutions investing at least 90 percent of the proceeds of expiring Greek bonds in newly issued five-year bonds. There would again be restrictions on their trading and the bonds would have the same interest rate formula as the 30-year issue.
The proposals received a fair degree of support, including from French President Nicolas Sarkozy.
Policy makers across the eurozone are trying to come up with a second bailout for Greece that involves some involvement by the private sector.
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