The good news in Moody’s Greek downgrade

by Peter Spiegel

Financial Times
July 25, 2011

All eyes in Brussels will be watching the bond markets in the eurozone’s periphery this week, particularly in Spain and Italy, where the danger of post-Greek deal contagion is most acute. After a brief relief rally after the bail-out package was agreed Thursday night, things have begun to look a bit shaky again.

Already, Moody’s this morning has joined Fitch in downgrading Greek bonds, citing the “substantial economic losses” Greek debt holders will incur under the plan. But it’s worth looking at a “special comment” Moody’s issued alongside the Greek downgrade, because there’s a bit of good news for European leaders in it.

The comment on “other euro area sovereigns” notes that despite the fact it is now “virtually certain” Greece will default on some of its bonds, it will at least be done in an orderly way. More importantly, Moody’s believes the other measures taken on Thursday night, particularly reforming the eurozone’s €440bn bail-out fund to give it more weapons to tackle the debt crisis, could help to stem contagion.

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