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Thursday, May 26, 2011

O2 HUB >> Moody's: Greek Default May Hit Europe Ratings

German Logo of the ECB.


A Greek debt restructuring could affect the credit ratings of other European sovereigns and would likely also lead to rating downgrades for Greek banks, Moody's Investors Service said Tuesday.
A default would trigger a downgrade for Greece, and possibly other European countries, regardless of what form the restructuring takes, Moody's said in a press release. This could take the form of a selective "reprofiling" of debt, or large-scale "voluntary" debt buy-backs at large discounts, the agency said.
"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," the Moody's report said.
The euro fell against the dollar after the announcement, with the single currency slipping to $1.4038 from $1.4070. It has since rebounded to trade at $1.4072.
"Whatever happens will be quite destabilizing," Al Wilson, Moody's chief credit officer for Europe, the Middle East and Africa, said in a telephone interview.
Mr. Wilson said the ratings of European countries with weaker economies could be pressured as well, although the stronger economies wouldn't be so hard hit. "We think what's most likely [in the event of a Greek default scenario] is a polarization of ratings in Europe," he said.
Greece itself would likely see its rating tumble two or three notches to Ca or C, from its current level of B1.
Greek banks could remain in the B range if they are recapitalized, and if the European Central Bank provides liquidity support, Moody's said. But the ratings firm said it considers it more likely that the private banks will also default, triggering ratings downgrades.
Moody's said it wasn't commenting on the likelihood or desirability of a restructuring, but merely wanted to examine the credit implications of different scenarios.
"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 allow Greece to default," the ratings firm wrote.







Write to Martin Vaughan at martin.vaughan@dowjones.com
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