Privatizations: Key to Greek Fortunes

by Simon Nixon

Wall Street Journal
March 7, 2011

Moody’s decision to downgrade Greek government debt by another three notches to B1 is not a huge surprise. The rating agency says the move reflects the increasing risk of a sovereign debt restructuring amid concerns that structural reforms are not being implemented fast enough, tax receipts are rising too slowly and that there is uncertainty over the willingness of the euro zone to continue supporting Greece beyond 2013. That’s understandably angered the Greek government which points out it managed to reduce its budget deficit by 6% of GDP last year and increase tax revenues by 6% of GDP against a backdrop of GDP falling by 4.5%. It also protests that it’s unfair to penalize Greece for what might happen after 2013 when European leaders have yet to agree their reform program.

With Greek government 10-year bonds currently yielding 12.1%, Moody’s is hardly saying anything the market didn’t already work out a long time ago. Indeed, Moody’s central scenario that government bondholders won’t have to bear losses looks decidedly Polyanna-ish compared to the market’s long-standing assumption that a default is all but inevitable. Greece can at least console itself the Moody’s downgrade will have limited impact in the real world since the Greek government and banks continue to have access to emergency funding from the European Union, International Monetary Fund and European Central Bank. Even so, the speed of the Greek government’s fall from grace is something to behold: Evolution Securities points out that:

Greece has now been downgraded 9 notches in just 440 days by Moody’s from the starting point of A1. To put this into perspective the average number of days that a firm remains at the A1 rating level is 1,647. If we add up all the days that a firm spends on average at the rating levels that Greece has travelled in this time the number we arrive at is 12,627.

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