Looming downgrades, Greek debt impasse hit euro zone
BERLIN/ATHENS (Reuters) - Standard & Poor's was set to downgrade the credit ratings of several euro zone countries on Friday, including France and Austria but not Germany or the Netherlands, in the first blow of the new year for the troubled single currency.
In a potentially more serious setback for the euro zone, negotiations on a debt swap by private creditors seen as key to averting a Greek default that would rock Europe and the world economy broke up without agreement in Athens, although officials said more talks are likely next week.
If Greece cannot persuade banks and insurers to accept voluntary losses on their bond holdings, a second international rescue package for the euro zone's most heavily indebted state will unravel, raising the prospect of bankruptcy in late March, when it has to redeem 14.4 billion euros in maturing debt.
French Economy Minister Francois Baroin said S&P had notified Europe's second biggest economy that its cherished triple-A rating had been cut by one notch to AA+, and most euro zone states had received notices of a change.
"This is not a catastrophe. It's an excellent rating. But it's not good news," Baroin told France 2 television, saying the government would not respond with further austerity measures.
A Spanish Economy Ministry spokeswoman said S&P would make an announcement after New York markets close at 4 p.m. EDT (2100 GMT) but declined to say if Madrid would be downgraded.
Euro zone sources said the countries to be downgraded included France, Austria, Slovakia, Italy, Spain and Portugal. One source said Germany was the only country that would emerge totally unscathed with its triple-A rating and a stable outlook. The source said the Netherlands, Finland and Luxembourg would keep their AAA status but be put on negative outlook.
Irish officials said Dublin would not be downgraded.
French daily Les Echos said S&P would cut Italy, Spain and Portugal by two notches.
The euro fell by more than a cent to $1.2650 on the news. European stocks, which had been up on the day, turned negative but reaction to the widely anticipated news was moderate. Safe-haven German 10-year bond futures rose to a new record high while the risk premium investors charge on French, Spanish, Italian and Belgian debt widened.
Greek negotiators who have repeatedly voiced confidence in a deal in which private creditors would accept writedowns of 50 percent of the face value of their bond holdings said they were now less hopeful, warning of "catastrophic consequences" for Greece and Europe if they failed.
"Yesterday we were cautious and confident. Today we are less optimistic," a source close to the Greek task force in charge of the negotiations said.
The Institute for International Finance, negotiating on behalf of banks, said in a statement: "Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.
The two sides are divided principally over the interest rate Greece will end up paying, which determines how much of a hit banks take.
While both sides appeared to be engaged in brinkmanship, there are also doubts about the take-up rate of any voluntary deal, since some hedge funds have bought up Greek debt and want to be paid out in full or trigger default insurance.
The double blow of the S&P news and the stalling of the Greek debt talks came after a brighter start to the year with Spain and Italy beginning their marathon debt rollover at lower borrowing costs this week.
The European Central Bank's move last month to flood banks with cheap three-year liquidity helped ease a worsening credit crunch and provided funds which governments hope some will use to buy sovereign bonds.
RESCUE FUND WEAKENED
S&P, which routinely gives governments 12 hours notice ahead of a downgrade, declined comment.
German Finance Minister Wolfgang Schaeuble played down the news, telling RTL television: "The ratings agencies have already hinted this could be coming. In the past months, we've come to agree that the ratings agencies' judgments should not be overvalued."
S&P warned on December 5 that it was reviewing the ratings of 15 of the 17 euro zone members, including Germany and France, the bloc's two largest economies, for a possible mass downgrade due to rising "systemic stresses" in the currency area.
France and Austria were both seen as being at risk because of their banks' exposure to the debt of peripheral euro zone countries and Hungary respectively, and due to the weakening economic outlook for Europe.
The cut in France's rating is a serious setback for the centre-right Sarkozy's chances of re-election in May and could weaken the euro zone's rescue fund, reducing its ability to help countries in difficulty.
France is the second largest guarantor of the European Financial Stability Facility, which currently has a AAA rating. Preserving that status would require members to increase their guarantees, which could prove politically unpopular.
After vowing for months to do everything to preserve Paris' top-notch standing, Sarkozy appeared to prepare voters last month for the loss of the prized status before the election.
His opponents pounced on the report as a verdict on the failure of his policies.
"This is in reality a double downgrade. It is a downgrade of our sovereign rating that will affect the country's reputation, with heavy consequences, and it is also a downgrade compared to our main neighbor, Germany, with which we had equal status up to now," centrist candidate Francois Bayrou said.
Socialist party leader Martine Aubry said: "Whatever we think of ratings agencies, this is bad news, and all the more so because the French people will have to pay the price. Mr Sarkozy will be remembered as the president who downgraded France."
France has the highest debt-to-gross-domestic-product ratio of the euro zone's AAA-rated countries.
It was not clear how far a downgrade would increase France's borrowing costs, since markets have already anticipated the prospect by raising the French risk premium over German Bunds.
"One notch is priced in but not more. The Franco-German spread can widen. It is about 130 basis points for the 10-year bond. The maximum level reached was 180 to 190 basis points and it can go back to this level," said Alessandro Giansanti, senior rates strategist at ING in Amsterdam.
(Additional reporting by Reuters euro zone bureaux; Writing by Paul Taylor, editing by Mike Peacock)
In a potentially more serious setback for the euro zone, negotiations on a debt swap by private creditors seen as key to averting a Greek default that would rock Europe and the world economy broke up without agreement in Athens, although officials said more talks are likely next week.
If Greece cannot persuade banks and insurers to accept voluntary losses on their bond holdings, a second international rescue package for the euro zone's most heavily indebted state will unravel, raising the prospect of bankruptcy in late March, when it has to redeem 14.4 billion euros in maturing debt.
French Economy Minister Francois Baroin said S&P had notified Europe's second biggest economy that its cherished triple-A rating had been cut by one notch to AA+, and most euro zone states had received notices of a change.
"This is not a catastrophe. It's an excellent rating. But it's not good news," Baroin told France 2 television, saying the government would not respond with further austerity measures.
A Spanish Economy Ministry spokeswoman said S&P would make an announcement after New York markets close at 4 p.m. EDT (2100 GMT) but declined to say if Madrid would be downgraded.
Euro zone sources said the countries to be downgraded included France, Austria, Slovakia, Italy, Spain and Portugal. One source said Germany was the only country that would emerge totally unscathed with its triple-A rating and a stable outlook. The source said the Netherlands, Finland and Luxembourg would keep their AAA status but be put on negative outlook.
Irish officials said Dublin would not be downgraded.
French daily Les Echos said S&P would cut Italy, Spain and Portugal by two notches.
The euro fell by more than a cent to $1.2650 on the news. European stocks, which had been up on the day, turned negative but reaction to the widely anticipated news was moderate. Safe-haven German 10-year bond futures rose to a new record high while the risk premium investors charge on French, Spanish, Italian and Belgian debt widened.
Greek negotiators who have repeatedly voiced confidence in a deal in which private creditors would accept writedowns of 50 percent of the face value of their bond holdings said they were now less hopeful, warning of "catastrophic consequences" for Greece and Europe if they failed.
"Yesterday we were cautious and confident. Today we are less optimistic," a source close to the Greek task force in charge of the negotiations said.
The Institute for International Finance, negotiating on behalf of banks, said in a statement: "Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.
The two sides are divided principally over the interest rate Greece will end up paying, which determines how much of a hit banks take.
While both sides appeared to be engaged in brinkmanship, there are also doubts about the take-up rate of any voluntary deal, since some hedge funds have bought up Greek debt and want to be paid out in full or trigger default insurance.
The double blow of the S&P news and the stalling of the Greek debt talks came after a brighter start to the year with Spain and Italy beginning their marathon debt rollover at lower borrowing costs this week.
The European Central Bank's move last month to flood banks with cheap three-year liquidity helped ease a worsening credit crunch and provided funds which governments hope some will use to buy sovereign bonds.
RESCUE FUND WEAKENED
S&P, which routinely gives governments 12 hours notice ahead of a downgrade, declined comment.
German Finance Minister Wolfgang Schaeuble played down the news, telling RTL television: "The ratings agencies have already hinted this could be coming. In the past months, we've come to agree that the ratings agencies' judgments should not be overvalued."
S&P warned on December 5 that it was reviewing the ratings of 15 of the 17 euro zone members, including Germany and France, the bloc's two largest economies, for a possible mass downgrade due to rising "systemic stresses" in the currency area.
France and Austria were both seen as being at risk because of their banks' exposure to the debt of peripheral euro zone countries and Hungary respectively, and due to the weakening economic outlook for Europe.
The cut in France's rating is a serious setback for the centre-right Sarkozy's chances of re-election in May and could weaken the euro zone's rescue fund, reducing its ability to help countries in difficulty.
France is the second largest guarantor of the European Financial Stability Facility, which currently has a AAA rating. Preserving that status would require members to increase their guarantees, which could prove politically unpopular.
After vowing for months to do everything to preserve Paris' top-notch standing, Sarkozy appeared to prepare voters last month for the loss of the prized status before the election.
His opponents pounced on the report as a verdict on the failure of his policies.
"This is in reality a double downgrade. It is a downgrade of our sovereign rating that will affect the country's reputation, with heavy consequences, and it is also a downgrade compared to our main neighbor, Germany, with which we had equal status up to now," centrist candidate Francois Bayrou said.
Socialist party leader Martine Aubry said: "Whatever we think of ratings agencies, this is bad news, and all the more so because the French people will have to pay the price. Mr Sarkozy will be remembered as the president who downgraded France."
France has the highest debt-to-gross-domestic-product ratio of the euro zone's AAA-rated countries.
It was not clear how far a downgrade would increase France's borrowing costs, since markets have already anticipated the prospect by raising the French risk premium over German Bunds.
"One notch is priced in but not more. The Franco-German spread can widen. It is about 130 basis points for the 10-year bond. The maximum level reached was 180 to 190 basis points and it can go back to this level," said Alessandro Giansanti, senior rates strategist at ING in Amsterdam.
(Additional reporting by Reuters euro zone bureaux; Writing by Paul Taylor, editing by Mike Peacock)
Label: Business News
0 Komentar:
Posting Komentar
Berlangganan Posting Komentar [Atom]
<< Beranda