Greek default would hurt other peripheral states
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.