Greece Will Probably Get EU Aid to Avoid Default, Fitch Says
Greece will probably get the bailout loans needed to avoid becoming the first euro country to default, Fitch Ratings said.
While filling a financing hole of about 30 billion euros ($43 billion) next year, the European Union also probably won’t force Greece to extend maturities, a step opposed by the European Central Bank, according to today’s Fitch note.
Greece will probably remain shut out of financial markets beyond the scheduled end of the 110 billion-euro bailout in May 2013, Fitch said in a report on its May 20 decision to cut Greece’s credit rating to three levels to B+.
“Incorporated into the B+ rating is Fitch’s expectation that substantial new money will be forthcoming for Greece from the EU and the IMF and that Greek sovereign bonds will not be subject to a “soft restructuring” or “re-profiling” that would trigger a “credit event” and consequently a default rating from the agency,” Fitch said.
Under the terms of the rescue package, Greece was due to sell about 30 billion euros of bonds next year. With its 10-year bonds yielding 16.4 percent, more than twice the level at the time of the bailout, the EU has indicated Greece will need more aid. The IMF has indicated it will withhold its one-third share of the bailout payments until Greece’s financing is clear.
“Without renewed market access, new money from official creditors will be required to address the fiscal funding shortfalls that are set to reappear in 2012,” Fitch said. “Additional financial support for Greece would only be credible in providing a path to solvency if it were fully funded beyond the end of the current 110 billion-euro program in 2013.”
ECB Clash
EU and ECB officials remain divided over how to aid Greece, with some European leaders calling for new loans and a debt “re-profiling” -- convincing bondholders to voluntarily accept an extension of maturities. ECB officials have said “re- profiling” is tantamount to default and would prompt the Frankfurt-based central bank to refuse to accept Greek bonds as collateral in their emergency funding operations, wiping out the capital of the Greek banking system, the biggest holder of the country’s bonds.
The euro rose to a three-week high against the dollar on optimism officials will agree on further Greek aid, trading at $1.4399 at 12:35 p.m. in Brussels, up 0.8 percent on the day.
EU leaders will decide on additional aid for Greece by the end of June and have ruled out a “total restructuring” of the nation’s debt, said Jean-Claude Juncker, head of the group of euro-area finance ministers.
Inspectors from the EU, the International Monetary Fund and the European Central Bank are set to wrap up a review of Greece’s progress in meeting the bailout terms in coming days. The EU will then formulate its plan for further aid to Greece.
To contact the reporter on this story: Andrew Davis in Rome at abdavis@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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