Greece would likely be in default if it follows a debt rollover plan pushed by French banks, Standard & Poor’s (S&P) warned on Monday, deepening the pain of a bailout that one European official said will cost Athens sovereignty and jobs.
European politicians and bankers had expressed confidence last week that the French proposal would not trigger a default, but ratings agency Standard & Poor’s said it would involve losses to debt holders, most likely earning Greece a “selective default” rating.
“It is our view that each of the two financing options described in the (French banks’) proposal would likely amount to a default under our criteria,” S&P said.
French banks, major holders of Greek sovereign debt, proposed voluntarily renewing some of the bonds when they fall due, but on different terms.
S&P cut Greece’s sovereign rating to “CCC” last month, from “B”, on a view that any restructuring of the country’s massive debt load would count as an effective default. The euro fell from around $1.4550 to a session low around $1.4510 after the latest S&P comment.
Derivatives industry body ISDA said before the French proposal was released in late June that a voluntary agreement to roll over Greek debt would “typically” not trigger payments on credit default swaps.
Greece was already facing an uphill struggle this week to start the process of selling off state-owned assets and reform its tax system to meet European Union and IMF conditions for bailing it out.
The deep spending cuts required under the loan terms have sparked angry protests on the streets of Athens. Eurogroup Chairman Jean-Claude Juncker said Greece will lose sovereignty and jobs to meet those criteria, a comment that has enraged unions. Any suggestion of foreign intervention in running the country is an incendiary political issue that will make implementing reforms even tougher. Public-sector union ADEDY, which has launched crippling strikes and protests, reacted angrily to his comments.
ADEDY President Spyros Papaspyros said Juncker was out of line: “Mr Juncker interferes in the internal affairs of a country, provokes European rules and is an embarrassment for the country whose government tolerates him.”
Juncker’s comments could trigger more of the anti-austerity street protests that have roiled the country for months as Greece stays stuck in its worst recession since the 1970s with a youth unemployment rate of more than 40 percent.
“The sovereignty of Greece will be massively limited,” Juncker told Germany’s Focus magazine in an interview released on Sunday.
Teams of experts from around the euro zone would be heading to Athens, he said.
“One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the euro zone,” Juncker said. Greece last week passed austerity measures worth 28 billion euros ($40 billion) and promised to deliver 50 billion euros in sell-off revenues by 2015, including raising 5 billion euros by the end of this year alone. On the list are public utilities whose sale is sure to prompt public reaction.
