John Chambers, Managing Director and Chairman of the Sovereign Ratings Committee at Standard & Poor’s, agreed with other panelists at the Bloomberg Link Sovereign Debt Conference today that default in Greece is not a matter of if but when.
“Selected default” is the most probable scenario for Greece within the first half of the year, he told investors, but emphasised this not necessarily a lasting or doom-laden scenario.
“Default is a market response to an insolvent situation,” he explained. “Having a default within a credit union doesn’t necessarily destroy the monetary union.”
“The key here for the rest of the eurozone is to keep to the plan that they had enunciated. It’s going to be a long slog.”
Even so, he added, the situation could progress far more smoothly than investors are suspecting. “Default will not necessarily bar Greece from the markets indefinitely,” Chambers said. “If they have the right policies in place they can come back to the market,” pointing to Russia which, after its default, had staged a quick return to the markets and S&P’s investment-grade ratings list.
However, he noted that the haircuts investors will be asked to take on Greek debt holdings and the country’s fiscal policies are unlikely to return its debt to sustainability anytime soon.
Addressing investors who have been looking to the European Central Bank to “end” the crisis in the eurozone, Chambers pointed out that “there’s only so much the ECB can do…The central bank is a lender of last resort for the banks, it’s not a lender of last resort for government bonds.”
However, he lauded the Bank’s decision to offer three year long-term refinancing operations with less stringent collateral requirements. “If the ecb had not come up with the LTRO lending facility…our ratings actions [taken on January 13 to downgrade nine eurozone countries] would have been more severe.”