S&P: ECB Greek bond swap could pile pressure on euro zone

Reuters
February 24, 2012

The European Central Bank's decision to exempt itself from taking losses on its Greek bonds gives its senior status in the bond market and may push up borrowing costs of other debt-strained euro zone countries, Standard & Poor's said on Friday.

The ECB and the 17 euro zone central banks made cosmetic changes to the 62 billion euros worth of bonds they own this week to avoid being pulled into Greece's debt reduction deal, which will see private investors lose well over half their money.

S&P, which carried out a mass downgrade of nine euro zone states last month, said the ECB's move was another blow for the bloc's weaker countries, changing the ECB's status at least in this instance "from implicit super-senior creditor to an explicit one."

"We believe that this development (seniority of ECB) could further weaken the prospects of peripheral euro zone sovereigns currently receiving official funding to regain the ability to access the capital markets and could raise borrowing rates of those sovereigns still accessing the primary markets," it said in a statement.

More