Scenarios: Possible impact of a Greek ratings default

Reuters
July 19, 2011

As euro zone officials tackle the debt crisis, they must weigh the threat of any downgrade of Greek debt ratings to default or selective default, which would add fuel to the contagion that has taken hold of bigger euro zone economies in recent weeks.

Euro zone officials will meet on Thursday for more talks on a second Greek bailout, after the euro zone debt crisis spread last week to heavily indebted Italy, the region's third-largest economy.

Policymakers are examining three broad options for securing the private sector's involvement in the second Greek bailout: an EU-funded Greek government buy-back of its own debt on the secondary market; a French plan for a voluntary roll over of maturing Greek debt; and a third option based on a bank tax to raise extra money to help Greece.

A document obtained by Reuters foresaw the two first options triggering at least a selective default ratings on Greek debt but said the third one was unlikely to result in a downgrade.

Rating agencies have played hard ball and have said most kinds of private sector participation in a Greek rescue plan would be perceived as coercive, thereby triggering a default rating.

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