“Be careful what you wish for,” says Lex in the FT. European politicians have criticised the credit-ratings agencies in the past for “falling under the influence” of US sellers of toxic debt and giving it top credit ratings. Now they might wish those agencies “were a little more pliable”.
Thanks to Standard & Poor’s (S&P), it’s “back to the drawing board” for the eurozone, says Sam Fleming in The Times. Last weekend, finance ministers agreed to provide Athens with the latest tranche of its bail-out package ratified last May. That eliminates the prospect of a near-term default, but Greece will soon need fresh money to avoid bankruptcy. This second rescue package has now run into trouble.
To placate increasingly irritated taxpayers in Germany, bondholders are to bear part of the cost of the rescue by voluntarily renewing some of their Greek bonds when they become due. But the “impossible knot”, as one senior official puts it, is that there seems no way to do this without the financial markets judging the plan to be a default on Greece’s debt commitments. That in turn could cause a Lehman-style crisis.
S&P has said that the complicated preliminary voluntary rollover plan being pushed by French banks would constitute a default on some of Greece’s debt. Creditors would have to wait longer to be repaid and the value of their bonds would effectively be reduced. Rival agencies Fitch and Moody’s have also signalled their scepticism. The agencies think the plan is “a way to hide a default”, says Daniel Gros of the Centre for European Policy Studies. And “it is”.
A key issue now is that the European Central Bank (ECB) – which has been propping up the Greek banking system by accepting Greek bonds as collateral for billions of euros of liquidity – has said it would stop doing so if Greece is deemed to have defaulted by all three agencies.
But if the ECB “really wanted to find a way to accept defaulted Greek bonds as collateral, it could”, says Brian Blackstone on WSJ.com. Rather than risk triggering another banking crisis, expect the ECB “to find some kind of fudge” to allow it to keep accepting Greek bonds, agrees Patrick Hosking in The Times. The bigger issue, however, is that even if the second package of loans is hammered out soon, it won’t change the fact that Greece is insolvent. The crisis continues.