Rating agencies Fitch and Moody’s threaten to collectively downgrade the Euro Zone, should Greece exit the common currency club. I wonder: did Greeks get supporters against Germany’s pressures? Is it a good or a bad sign? But, of course, the question about the power potential of ratings agencies remain…
Moody’s: Greek euro exit could threaten currency’s existence
Moodys Investors Service said on Friday that a Greek exit from the euro could pose a threat to the currencys existence. In addition, developments in Spains banking sector that may require a European rescue package have negative credit-rating implications for the sovereign, Moodys said in a statement.
‘Were Greece to leave the euro, posing a threat to the euros continued existence, we would need to review all euro-area sovereign ratings, including those of the Aaa nations,’ the rating agency said.
A Greek euro-zone exit would particularly affect the sovereign ratings of Cyprus, Portugal, Ireland, Italy and Spain, Moodys said.
‘Some (other) members of the European Union could also be affected, given the strong financial and trade linkages that exist between the members of the monetary union and the European Union,’ Yves Lemay, a Moodys sovereign credit analyst in London, told Reuters.
Moody’s warning followed a similar warning by Fitch on Thursday. Fitch warned to downgrade EZ credit ratings. On Friday, Fitch cut Spain’s long-term credit rating to BBB and left it two notches from junk.
Fitch “also said it would immediately cut the credit ratings on Cyprus, Ireland, Italy, Spain and Portugal if Greece were to exit the eurozone. Additionally, all eurozone nations would have their ratings put on its negative ratings watch list, setting a six-month time frame for a potential downgrade. (Financial Post)
A Euro Zone Finance Ministers teleconference is scheduled for today Saturday at 5 pm, with Spanish rescue package on the agenda. Spanish banks are on the verge of collapse due to property bubble. It is estimated the banks would immediately need 40 billion euro, while the total rescue package is estimated to be 80 billion euro.
Self-fulfilling Prophecy
Eurogroup Head Juncker, Spanish de Guindos (13 Mar 2012).
Add some billions for golden boys bonuses and there would go a €100-billion package that will enslave Spaniards, their children and their children’s children….
Keeping Greece in while it is still not willing to implement the most important parts of the MoU and not taking action should lead to downgrading. Not forcing Greece out of the euro because of it’s utter failure to keep even one part of the deals it signed. If Greece would leave, or better, be forced to leave the euro that would be the first time the other euro-countries would show that they really are willing to take steps to safe the currency.
But by turning this in a “damned if you do, damned if you don’t” These rating agencies are putting just another nail in the coffin of their own credibility. As it stands now it should be clear that they only serve their own self interests and not that of the investors they are supposed to serve.
I also support some parts of the MoU but all in all it is very very tough (incl lack of growth measures) and to certain extend unfair and therefore impossible to be implemented. Blame those who put their signatures without reading it. It has to be revised, any way.
I agree. I have only my doubts on the growth measures. Without real reforms any input will flow to the same crooks as before. And not one euro will find its way into growth.
In a way those growth measures were included in the original MoU. Lot of measures were aimed to get rid of the stranglehold the Greek economy and it’s people were in by the prevailing state-ism. The liberalizations of the taxi and trucking was aimed at that. So were the sell-off of the DEKOs. These last were the only way to quickly stop this money hemorrhaging part of the Greek state, since any reform without selling them off would be blocked by the constitution. And third the reorganization of the civil service and especially the Tax and custom part of it.
If implemented or started in earnest, these measures would have freed an awful lot of money. The new setup of the Tax and customs alone would have brought in so much money (What did the head of the SDOE say? More than 25 billion?) that a lot of the draconian measures that came in later would not had been necessary.
It would also have created enough breathing room to create growth in the healthy parts of the economy.
But the Greek politicians choose other roads…
“did Greeks get supporters against Germany’s pressures?”
Not really. this only shopws that influential customers of those rating agencies either hold large sums of Greek debt or are speculating on Greece to stay in the Eurozone. Or both. Anyway, probably nobody of the forces pushing for this give a damn about the fate of the Greek people. Better don’t put too much hopes into that “support”. Wall Street will change its mind as soon as their profit interests change. One day they bet on your survival, the next one on your suddenn death. Those gamblers have no conscience.
Btw, I guess that most people agree that rating agencies should base their judgments on cold hard facts, calculations that can be checked for correctness, and openly state their assumptions when they make “decisions under uncertainty”. Especially in cases where the outcome will seriously effect hundreds of millions of people! But when it comes to the consequences of Greece exiting the Eurozone vs. a continuation of the large scale rescue efforts, NOBODY, not even the world’s leading economists (even Krugman and Stiglitz are obnly voicing gut feelings), have offered such a reasonable, reality based analysis. And the rating agencies, neither. As long as they haven’t done their homework, they shouldn’t make any judgment about future developments. The mere guesswork of some Wall Street pundits, possibly influenced by big money customers of their company, isn’t good enough to base such far ranging decisions on it. Those experts have been disastrously wrong in the case of the mortgage “investments” before, we shouldn’t let them fool us again!