Photo: luckypines, Flickr
For Greece to have any hope of solvency it needs to restructure its debt.And the good news is that French and German banks have basically agreed to this, in contravention of the fear that they could not withstand any change to their holdings at all. The plan is to roll over their 5-year debt into 30-year debt (reducing Greece payments), while also getting a few other sweeteners.
But there is one possible hitch: The ratings agencies might call this a default, which could wreck the plan. An earlier report indicated that the ratings agencies would let the plan go, calling it Kosher (even though, clearly, someone rolling 5-year debt into 30-year debt has taken a big hit to the net-present value of their current holdings).
Still it’s an open question.
The Guardian sounds the alarm:
Simon Derrick, chief currency strategist at BNY Mellon, said: “When you compare the French plan to what the ratings agencies have said, it looks as though they would make it a default.”
Standard & Poor’s said no final decision would be made on the scheme until the full details were published but pointed out a recent statement setting out the reasons a debt-swap might still constitute a default. “While an exchange offer for longer-dated bonds may appear to be ‘voluntary’, we may conclude that investors have been pressured into accepting because they fear more adverse consequences were they to decline the exchange offer,” S&P said.
This warning may ultimately be more bark than bight. The thing is: While the ratings agencies have the power to wreck the bailout, it’s the governments of Europe and the US that have the power to wreck the ratings agencies by pulling their authority over anything, rendering them as inconsequential as any other third-party research firm.
And in fact, this is probably going to grow as an existential issue for S&P, Fitch, and Moody’s, as they (for the first time, really) sound the alarm over US debt and threaten to remove its AAA.