Greek de­fault would hurt other pe­riph­eral states

Kathimerini English - - Business & Finance -

Greek debt de­fault would hurt other pe­riph­eral eu­ro­zone states and could push Por­tu­gal and Ire­land into junk ter­ri­tory, Moody’s said yes­ter­day, warn­ing it would clas­sify most forms of re­struc­tur­ing as a de­fault. Mar­kets have piled pres­sure on heav­ily in­debted eu­ro­zone coun­tries this week as in­vestors worry not just about Greece but also Spain, where the gov­ern­ment suf­fered a ma­jor de­feat in re­gional elec­tions at the week­end, and af­ter rat­ings agen­cies warned about the health of Italy and Bel­gium. “A Greek de­fault would be highly desta­bi­liz­ing and would have im­pli­ca­tions for the cred­it­wor­thi­ness of is­suers across Europe,” Moody’s In­vestors Ser­vice’s chief credit of­fi­cer in the re­gion, Alas­tair Wil­son, told Reuters in a tele­phone in­ter­view. “This would re­sult in more highly po­lar­ized cred­it­wor­thi­ness and rat­ings among eu­ro­zone sov­er­eigns, with the stronger coun­tries re­tain­ing very high rat­ings and the weaker coun­tries strug­gling to re­main in in­vest­ment grade.” In re­cent days, Stan­dard & Poor’s cut its out­look to “neg­a­tive” from “sta­ble” for Italy, which has the eu­ro­zone’s big­gest debt pile in ab­so­lute terms, while Fitch said it might down­grade Bel­gium’s AA+ credit rat­ing. Bel­gium has not had a proper gov­ern­ment since elec­tions last June though it is en­joy­ing an eco­nomic boom. Wil­son said the fo­cus af­ter any Greek de­fault would be on Por­tu­gal and Ire­land, which like Greece have agreed to re­ceive in­ter­na­tional bailouts from the Euro­pean Union and the In­ter­na­tional Mon­e­tary Fund. Asked if these two coun­tries would risk fall­ing into junk ter­ri­tory in the event of a Greek de­fault, he said: “Po­ten­tially, yes... If there were to be a Greek de­fault, there could po­ten­tially be multi-notch down­grades to the weak­est sov­er­eigns.” (Reuters) mar­ket con­cerns over the coun­try’s debt sit­u­a­tion have eased. The auc­tion was watched closely given mount­ing wor­ries that Greece’s ur­gent debt prob­lems could af­fect sen­ti­ment in larger coun­tries like Spain. In­vestors are also con­cerned over Spain’s abil­ity to en­force debt cuts fol­low­ing the gov­ern­ing So­cial­ist party’s drub­bing in week­end elec­tions. The trea­sury said it sold 998 mil­lion eu­ros in three-month bills at an av­er­age in­ter­est rate of 1.38 per­cent, up marginally from 1.37 per­cent in April. It sold 1.3 bil­lion eu­ros in six-month bills at a rate of 1.76 per­cent, down from 1.86 per­cent. De­mand was nearly six times the amount of­fered for the smaller bills and over five times the amount in the six-month cat­e­gory. “This is a bet­ter- than-ex­pected re­sult,” Uni­credit bond an­a­lyst Chiara Cre­monesi said in a note. “In­deed, fol­low­ing pres­sure on Spain and Italy, we would have ex­pected to ob­serve a rise in cost of fund­ing at yes­ter­day’s auc­tion, es­pe­cially at the 3M [three-months]. We take this as a mildly en­cour­ag­ing sign,” Cre­monesi said. lot­tery li­censes by the end of the year as part of a stepped-up as­set sales and real es­tate de­vel­op­ment plan to raise 50 bil­lion eu­ros by 2015 to pay down debt.

(Bloomberg)

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