Moody’s cuts Greek rating on default fear
NEGOTIATORS in Athens were scrambling to avoid having to meet the full cost of a second Greek bailout as Moody’s downgraded the sovereign again yesterday. But the euro stayed near three-week highs on the expectation that a deal will be reached by the end of the week.
Moody’s said that Greece’s new rating means that there is “an even chance of default over the rating horizon”. Half of others on the same rating have defaulted, the agency said.
And in the first public signal that financial institutions are beginning to write off Greece’s debt, Nord LB, a German state-owned lender, used its first-quarter results to prepare investors for losses, saying it has taken “precautionary actions” because “it is likely that there will be a haircut on Greece’s national debt”.
The IMF, EU and ECB (or “troika”) are now trying to persuade some of Greece’s creditors to roll over their debt or to buy more of Athens’ bonds, potentially using some of the state’s assets earmarked for sale as collateral.
If the troika cannot succeed in introducing even a mild form of burden-sharing, it will have to find cash for all of Greece’s €60-80bn (£53bn-£70bn) funding shortfall for 2012-2013 itself.
The ECB has been strictly opposed to imposing losses on creditors other than Eurozone member states for fear it could cause chaos in financial markets due to widespread exposure to Greek debt – not least in the ECB’s own holdings.
By contrast, the Irish government is pressing ahead with plans to impose losses on bondholders of its nationalised banks. All have now all published plans to favour state-owned equity over private debt.
Meanwhile, Portugal sold €850m of four-month bonds yesterday, at the lower end of its €750m-€1bn target range. But it had to pay an average of 30 basis points more for the cash than during the last equivalent sale despite securing a €78bn bailout last month.