A Greek debt default would hurt other peripheral euro zone states, Moody's said today, becoming the last of the three major rating agencies to say any kind of restructuring would constitute 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," it said in a statement.
Markets piled pressure on heavily indebted euro zone countries at the start of the week as investors worried not just about Greece but also about heightened risks in Spain, where the government was drubbed in regional elections, and ratings agencies' warnings for Italy and Belgium.
S&P cut its outlook to "negative" from "stable" on Italy, which has the euro zone's biggest debt pile in absolute terms, and Fitch said it may downgrade Belgium's AA+ credit rating. The country has not had a proper government since elections last June but is enjoying an economic boom.
"As for other stressed European sovereigns, Moody's believes that their ratings will invariably be affected, regardless of the myriad forms that a default by Greece could take," the statement said.
"This would in turn lead to increasingly polarised sovereign ratings in Europe, with stronger countries retaining high or very high ratings, and weaker countries struggling to remain in investment grade."
Greece announced yesterday €6 billion worth of new, emergency fiscal measures to shrink its budget hole and jump start privatisations to convince lenders it can pay down debt without a restructuring.
Finance minister George Papaconstantinou said Greece would not be able to honour its obligations if it does not get the next tranche of a bailout loan and the IMF has made clear it cannot disburse the money if Greece's 2012 EU funding is not assured.
Moody's said a Greek default might take many forms, including changes in the terms and conditions or a selective reprofiling, adding that it would consider all of these as distressed exchanges.
The statement also said the Greek banking sector would need recapitalisation in case of a sovereign default, as well as continued liquidity support from the European Central Bank. It warned that a sovereign default was likely to be accompanied by some form of default on bank debt.
Fitch cut Greece's credit rating by three notches on Friday, pushing the country deeper into junk territory, and warned that any kind of debt restructuring would amount to default.
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," Moody's said.
Reuters
