July 4, 2011
Standard & Poor's warning that Europe's plan to rollover Greek debt will be classed as a default has dampened hopes that the crisis can be resolved quickly.
Gary Jenkins, head of fixed income research at Evolution Securities
Just as it was all going so well, S&P just picked up the can ... We said last Thursday that we found it difficult to see how the agencies could avoid issuing a default rating if private participation took the form set out under the French plan and this morning S&P became the first agency to opine on the proposals put forward by the Fédération Bancaire Française (FBF). They have stated that "each of the two financing options described in the FBF proposal would likely amount to a default under our criteria". As not triggering a default was set as a precondition by the FBF, it looks like it might be back to the drawing board. Or the ECB backs down and states that it will continue to accept defaulted bonds as collateral and the FBF ignores its own terms and conditions. We are in such strange and dangerous times that anything is possible. It might be that a completely different form of bailout has to take place, such as guaranteeing Greek debt or buying it back. Anyhow, this is certainly a brave decision by S&P and it will be interesting to see how the other follow and how senior officials at the EU react. Bet they wish they had gone ahead and set up their own rating agency now ...
Before the news above the weekend had been going pretty much as expected. Eurogroup finance ministers authorized the next tranche of funds for Greece over the weekend. The second package for Greece was not agreed at Saturday's teleconference and the statement reiterated the desire to find and agree "modalities for voluntary private sector involvement with a view to achieving a substantial reduction in Greece's year-by-year financing needs, while avoiding selective default". Well we now know that the current plans have not achieved that aim. A second Greek bailout package worth €85bn including private participation and privatisation receipts was being talked about on Friday. German finance minister Wolfgang Schauble was reported as saying a second package would be agreed by autumn, in time for the next expected quarterly tranche of funds.
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Read the S&P Statement
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