July 4, 2011
As Europe turns from its latest short-term fix for Greece to planning a longer-term bailout for the debt-plagued country, the ratings agency Standard & Poor’s indicated Monday how difficult it would be to offload some of the cost of rescuing Greece onto creditors without also provoking a default that could shock the global economy.
Representatives of European governments and banks, continuing talks that have been under way for several weeks, expressed optimism that they could find ways that bond holders could voluntarily contribute to reducing Greece’s debt.
But S.& P., responding to a French proposal to have banks give Athens more time to repay loans as they come due, seemed to leave little room for maneuver. The proposal would amount to a default, S.&P. said, because creditors would have to wait longer to be repaid and the value of Greek bonds would effectively be reduced.
“Ratings agencies are saying, ‘We don’t think it’s voluntary; it’s just a way to hide a default’ — which it is,” said Daniel Gros, director of the Center for European Policy Studies in Brussels.
European leaders are trapped between domestic political demands for banks to share the cost of a Greek bailout, and the dire consequences of a default. These would include the collapse of Greek banks, probably followed by the collapse of the Greek economy and Greece’s exit from the euro zone.
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