Bank help for Greece 'is default'

21 June 2011 Last updated at 08:23 GMT Mass protests against the government's austerity measures are continuing across Greece The Fitch credit ratings agency has said that if commercial lenders roll over their loans to Greece, it will deem the country to be in "default".

As Greece awaits further bail-out money from the EU and International Monetary Fund, private investors are under pressure to extend their loans.

Last week, France and Germany reached a compromise over whether such investors should assume a greater burden, saying any such move should be "voluntary".

But few think their help is by choice.

Fitch's comments come as the Greek government is due to face a vote of confidence, a crucial first step towards gaining another 12bn-euro ($17bn; ?10bn) loan from the EU and the IMF.

If the government survives the vote, Greece's parliament will be asked to back the latest spending cuts - worth 28bn euros - on 28 June.

'Junk' fears

Fitch Ratings believes that any softening of terms by commercial banks would come only as a result of political pressure and therefore cannot be deemed "voluntary".

Categorising a borrower as "in default" will mean a further lowering of Greece's credit rating.

This is already deemed to be "junk", meaning that lenders are not expected to get back anything like the value of their original loan.

A further downgrade to default would mean a fire-sale of Greek loans, as certain investors would no longer be allowed to hold such risky assets.

Greece is trying to pass austerity measures through parliament in order to qualify for another slice of aid, worth 12bn euros ($17bn, ?12bn) from the EU and IMF. The measures, which have cut benefits, public sector salaries and pensions, have sparked protests across the country.

In any case, that new money will still not be enough to keep Greece afloat long-term, and the institutions are planning to provide another bail-out, which could be worth more than another 100bn euros.

But amid political pressure from certain quarters, particularly the German government, this requires the willing contribution of private lenders.

Any contribution may prove worthless if it is viewed as a technical default.

Another agency, Standard & Poor's, has also warned that any attempt to restructure the country's debt would be considered a default.

The third leading agency, Moody's has a rating on Greece's debt that implies a 50% chance of a reneging on repayment within three to five years.

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Greece default 'would hit others'

24 May 2011 Last updated at 13:56 GMT Greece is seeking political consensus over its latest austerity programme Any Greek debt default would likely hurt the credit rating of other peripheral eurozone countries, the ratings agency Moody's has warned.

In a statement on the impact of a potential default, Moody's said such a default would also hurt Greek banks.

Moody's also became the latest agency to say any kind of restructuring of Greek debt would constitute a default.

Meanwhile, the Greek opposition leader has rejected the government's request to support a four-year austerity plan.

The plan would lay out deficit reduction measures that go two years beyond the next general election.

Greece received a 110bn euro (?96bn; $155bn) bail-out from the European Union and International Monetary Fund last year.

'Wrong recipe'

Greece's European partners had demanded cross-party support for the plan after talks last week on possible further bail-out measures.

Antonis Samaras, leader of the New Democracy party, said he believed the austerity demanded by Brussels would hurt the country's economic recovery.

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I didn't come to discuss the looting of Greek society with Mr Papandreou”

End Quote Alexis Tsipras Leader of the Left Coalition opposition party "I am not going to agree to this recipe, which has been proven wrong," said Mr Samaras after meeting Prime Minister George Papandreou.

The right-winger instead wants to cut taxes in order to stimulate an economic recovery.

"The government lacks the courage to restart the economy and is not considering a renegotiation," he added.

"It is repeating the same mistake, and exceeding the limits of the Greek economy and of our people."

The government has a majority in parliament and does not rely on opposition support for its current austerity budgets.

'Looting'

But Mr Papandreou faces even more opposition from the left.

The head of the Communist party, which is influential with trade unions, refused even to meet him, while Alexis Tsipras, leader of the Left Coalition party, called on him to resign.

"I didn't come to discuss the looting of Greek society with Mr Papandreou," said Mr Tsipras. "I came to tell him that he must not... go ahead with this crime against the Greek people."

Meanwhile, Greece's second biggest union Adedy, which represents civil servants, announced plans for a general 24-hour strike in June.

"This policy must stop now," the union said in a statement, referring to budget cuts including public pay cuts, civil service redundancies and an increase in VAT.

"These measures will bring down the living standards of small and medium classes by over 20%."

'Adverse implications'

There has been increasing speculation that Greece could be allowed to restructure its debt.

On Monday, the Luxembourg Prime Minister and head of the eurogroup, Jean-Claude Juncker, said that a restructuring would involve a delay in repayments and a cut in interest payments, but would only be granted if the Greek government met strict targets.

In its statement, Moody's said: "It is apparent that the longer the current state of uncertainty affecting Greece persists, the greater the temptation on the part of both the Greek and the euro area authorities to try to undertake some form of debt restructuring - in other words, to allow Greece to default.

"Moody's believes that a default is likely to have adverse credit rating implications for Greece, possibly some other stressed European sovereigns, and the Greek banks, regardless of the efforts made to achieve an 'orderly' outcome.

"The full impact on Europe's capital markets would be hard to predict and harder still to control. The fallout would have implications for the creditworthiness (and hence the ratings) of issuers across Europe."

Meanwhile, Greece's cost of borrowing in bond markets has continued to rise steadily, as expectations of an eventual default rise.

The yield on its 10-year bonds rose above 17% on Tuesday, up from 15.3% a week ago.

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