S&P equates delayed Greek debt payment to default
The ratings agency pointed out that a Greek debt crisis would immediately spread to European banks, especially French and German banks which are the largest holders of Greek debt papers.
July 4, 2011 11:38 pm EDT
Politics, Government, National Government, Economy, Business And Finance, Macro Economics, Credit And Debt
Even if the Greek parliament had passed last week two austerity program legislations that paves the way for the release of the country’s second tranche of loan from the European Union and the International Monetary Fund, a ratings agency is still wary of a Greek debt crisis.
Standard & Poor’s warned on Monday that a proposal to restructure Athens’ debt, which would lead to a delay in payment, is equal to a default.
S&P was reacting to an agreement in principle by German and French banks to roll over loans to Greece to give the financially challenged government sufficient time to repay its debts.
The roll over would be done by reinvesting the proceeds of maturing Greek debt into newly issued bonds.
S&P insisted it would still be a default because creditors would need to wait longer to the paid and the value of Greek bonds would be cut. A default could lead to the collapse of Greek banks and later on the Greek economy, followed by Athens’ exit from the eurozone.
The ratings agency pointed out that a Greek debt crisis would immediately spread to European banks, especially French and German banks which are the largest holders of Greek debt. Even before an official default, ratings of French banks have been downgraded because of their vulnerability to the Greek economy.
Experts pointed out that Europe is doing everything it can to avoid a Greek default because such a scenario would lead to payment of credit-default swaps with unpredictable results. The European Central Bank warned that the shock of a Greek default on the global economy could be comparable to the Lehman Brothers collapse in 2008.
The S&P downgrade of Greece last month to CCC from B caused shares of British, French and German banks to go down by 2.3 percent, 2 percent and 1.7 percent.
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