No is the word, Fitch tells Greece

Fitch Ratings has put the kybosh on the eurozone's proposed system of voluntary commercial loans to Greece. But who would have put their thumbs up for that anyway?

by Dave Waller
Last Updated: 06 Nov 2012
And so the painfully slow response to the Greek crisis lumbers on. Now Fitch Ratings has announced that if commercial lenders voluntarily roll over their loans to Greece it will deem the country to be in default. That won’t please the French or the Germans, who’d hit upon the ruse of the ‘voluntary’ contribution last week, in order make it look like they weren’t imposing a compulsory roll-over of credit or formal write-down of the 340bn euros that the Greek government owed. Why? They wanted to avoid the default rating. Whoops.

You can see their logic: when the Greek bonds come up for renewal you simply lend the repaid debt back to Greece, reducing the total amount your taxpayers have to shell out. It’s worked before in Eastern Europe, they’d say. Trouble is, those countries could afford to pay it back. Indeed, if you were lucky enough to get your money out of Greece, you’d have to be a few olives short of a salad to volunteer to stick it straight back in.

So Fitch has thrown a further spanner into Greece’s already kaput works, arguing that such loans would hardly be ‘voluntary’ as they’ve been made under political duress. The word ‘default’ is the last thing Greece needs to hear right now, as it would further ruin its woeful credit rating, render such contributions worthless and spark a fire-sale of the risky loans.

We bet John Lipsky, the acting IMF MD, is hardly over the moon to be catapulted into the breach right at this point, following Dominique Strauss-Kahn’s untimely demise. While he gets to make apocalyptic pronouncements (warning that the Greek crisis would ‘be felt much more strongly around the world’ if it was allowed to draw in core eurozone banks), all the squabbling has had the poor chap pulling his moustache hair out.

So far Europe has failed to finalise both a second bailout, expected to amount to €120bn over three years, and to disburse a tranche of €12bn from the rescue launched in May last year, declaring that first Greek PM George Papandreou would need to win cross-party support for the radical austerity and privatisation being pushed through parliament. Greece needs the €12bn by mid-July to avoid default.

Fitch’s comments won’t come as good news for Papandreou, who’s facing that parliamentary vote of confidence later today. But to be honest that's not his only problem. Fitch is just one of the entities that will be watching for the result of the vote before it can really act. After all, if the vote fails all bets are off.

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