Greece will default. That is the verdict of ratings agency Fitch, which has just downgraded the country two notches to "C" on the back of the "haircuts" announced yesterday in Greece's bailout package. This lowers the country further into "junk" status (or below investment grade) - where it has been since January 2011. Fitch says it will re-rate Greece once the debt-swap has completed, likely to "RD" - or restricted default. More from Fitch: In Fitch's opinion, the exchange, if completed, would constitute a 'distressed debt exchange' (DDE) in line with its criteria and consequently yesterday's announcements set in motion the agency's process for reviewing Greece's issuer and debt securities ratings. The sovereign IDR has accordingly been lowered to 'C' from 'CCC' indicating that default is highly likely in the near term. The ratings of the securities subject to the exchange have also been lowered to 'C' from 'CCC'. Fitch considers that the proposal to reduce Greece's public debt burden via a debt exchange with private creditors will, if completed, constitute a rating default, and result in the country's IDR being lowered to 'Restricted Default' ('RD') upon completion. The ratings of GGBs affected by the exchange, including those not tendered but restructured under CACs, which are expected to be imposed retrospectively on bonds issued under Greek law, will also be lowered to 'D' ('default') at this time.
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Wednesday, February 22, 2012
Fitch downgraded GREECE - the proposal to reduce Greece's public debt burden constitute a rating default
Greece will default. That is the verdict of ratings agency Fitch, which has just downgraded the country two notches to "C" on the back of the "haircuts" announced yesterday in Greece's bailout package. This lowers the country further into "junk" status (or below investment grade) - where it has been since January 2011. Fitch says it will re-rate Greece once the debt-swap has completed, likely to "RD" - or restricted default. More from Fitch: In Fitch's opinion, the exchange, if completed, would constitute a 'distressed debt exchange' (DDE) in line with its criteria and consequently yesterday's announcements set in motion the agency's process for reviewing Greece's issuer and debt securities ratings. The sovereign IDR has accordingly been lowered to 'C' from 'CCC' indicating that default is highly likely in the near term. The ratings of the securities subject to the exchange have also been lowered to 'C' from 'CCC'. Fitch considers that the proposal to reduce Greece's public debt burden via a debt exchange with private creditors will, if completed, constitute a rating default, and result in the country's IDR being lowered to 'Restricted Default' ('RD') upon completion. The ratings of GGBs affected by the exchange, including those not tendered but restructured under CACs, which are expected to be imposed retrospectively on bonds issued under Greek law, will also be lowered to 'D' ('default') at this time.
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But just to throw another spanner in the works, earlier this month, Standard & Poor's said:
application of retroactive "Collective Action Clauses" (CACs) [...] would constitute a selective default. Were such CACs implemented, Standard Poor's would lower the sovereign credit rating (the issuer credit rating) on Greece to 'SD'.
12.18 We don't know what the ECB will do, but when questions arose about the possibility of a Greek default last year, officials seemed to suggest that the central bank would be prepared to take the highest rating on Greek debt from the main rating agencies. So, as long as all of them don't downgrade Greece to "default," the banks should, in theory, be OK.
12.15 And why do we care? After all, it's not Fitch, or any rating agency that officially decides if Greece has defaulted, that's the job of the International Swaps and Derivatives Association (ISDA).
But, if Greece is in "restricted default," then this poses questions over whether the European Central Bank (ECB) can take Greek bonds as collateral in order to loan money back to banks. If Greek banks can't fund themselves, they will be in a spot of bother.
There are also reports this morning that the IMF is planning to contribute as little as a tenth of the new Greek package.
Süddeutsche Zeitung reports from New York that Christine Lagarde is playing hardball, proposing that the IMF should contribution at most €13bn or a tenth compared with 27% of the first €109bn package. The IMF's managing director, moreover, won't press the release button for this - as the Guardian reported today - until the EU/Eurogroup agree to combine the two bailout funds, the current EFSF and pending ESM, to produce a firewall against contagion of up to €750bn
We have news on Greece's debt swap, which is meant to cut its total borrowings by €107bn.
Finance minister Evangelos Venizelos has told the Athens parliament that the formal offer to bondholders will begin on February 24 at the latest (so perhaps not today after all), with the exchange occuring on March 12.
However, Greek bonds that were issued under British law (which make up a small proportion of the total debt pile) will not be swapped until early April.
The main difference between those British-law securities, and those issued locally, are that they contain "Collective Action Clauses" allowing the government to automatically declare a default if creditors don't take part in a voluntary restructuring.
12.56pm: A reminder that we have a flickr account that covers protests in Greece (click here).
Also, if you are there, we'd be grateful for any contributions from the streets today - it really complement's Helena's reporting from the ground. My email address is graeme.wearden@guardian.co.uk, and/or you could post in the comments below.
12.47pm: Athens is gearing up for this afternoon's protest marches (details here)
Several subway stations were due to close at 3pm local time (or 1pm GMT)
The statement doesn't include much new (so don't start swotting up on your Greek specially). Papademos basically said Greece now needs to pass legislation approving the programme, and complete the PSI agreement.
He added that the decisions taken will create conditions that are
conducive to growth and the recovery of the Greek economy.
Regular readers might remember that Greek president Karolos Papoulias surrended his €286k salary a week ago, in solidarity with the workers. They might also recall that we reported his salary as €400k (bigger than Barack Obama's). That was a mistake, I'm afraid, which was later corrected. Sorry about that.
2.20pm: Bank shares in Athens have fallen sharply today, after rallying strongly in recent days.
Greece will conduct its bond swap on debt covered by domestic law on March 12, with a formal invite to bondholders made by February 24 at the latest. Bonds covered under foreign law will be exchanged in early April, according to finance minister Evangelos Venizelos.
He told the Greek parliament that bondholders will have 10 days to take up the offer.
The "voluntary" swap will see private investors take a 75pc real loss on their holdings of Greek debt. Parliament wants to pass a law forcing losses on dissenting bondholders as long as two-thirds comply (according to Reuters).
Protests continue in Athens despite the drizzle, and there are more planned for tomorrow. At 9am Greek hospital workers are holding a rally outside the Health Ministry to kick off a 24-hour strike. Here's an afternoon update from David Blair in Athens:
It's cold and wet in Athens and the demonstrators are looking pretty bedraggled. Some more have arrived, but there still can't be more than about 500. The underground station at Syntagma square is closed and the surrounding streets have been sealed off, presumably to make it difficult for more protesters to arrive. At the moment, there seems little risk of that.
Why are you surprised? The German tabloids and media treat the Greek people in exactly the same way i.e. thieves, lazy bastards, corrupted, everyone retires at 40, etc ... The Media always try to manipulate the people in maintaining a certain attitude towards the Greeks, the Germans etc. Not mentioning how Greeks are treated when they are abroad, especially in Germany. Trust me, it's not a really nice thing hearing everyday that we are failed and corrupted State and we should sell our islands and Acropolis to pay our debts! Sell it whom exactly? These monuments and this Land have survived for more than 2000 years now.
Everyone keeps talking as if money are going directly from European citizens to pay Greece's debt? On the contrary, Greece is currently paying a substantial amount of interest to the donor countries, whose tax revenues have not been needed yet. Don't you realise that the future of the Banks and financial institution is what matters most nowadays? Are you aware of the unemployment rates in the lazy Southern countries? Are you aware that students pass out in the schools because their parents cannot provide them with the basic breakfast? Are you aware of how many people queue on a daily basis outside the church to get basic 'Lebensmittel'?
Greeks are responsible for many of the bad things currently going on in the Country, but they are not responsible for Europe's mistakes.
Now tell me, where is solidarity towards the people of this World?
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