Greek collateral deals negative for rating - Moody's

Monday 22 August 2011

LONDON (Reuters) - A series of agreements forcing Greece to provide collateral in return for aid from foreign governments would be negative for the credit ratings of Greece and other troubled euro zone states, Moody's ratings agency said on Monday.

The agency also said such deals showed a lack of will in some euro zone countries that put more pressure on Germany and France to take stronger steps to support the euro project.

Austria, the Netherlands and Slovakia said on Friday they wanted collateral on their loans to Greece after Finland secured such a commitment, but Greek officials have said they were not talking to countries other than Finland about such a plan.

Moody's warned that the pursuit of such agreements could delay the next tranche of aid for Greece and threaten to cause a default on payments on its debt.

It said a proliferation of collateral agreements would also limit the availability of funds for future bailout programs, and that for these reasons it expected other euro area members ultimately to reject the Finland-Greece deal.

"The tentative Finnish-Greek collateral accord raises concerns about the willingness and ability of some euro area policymakers to implement measures that may prove necessary to preserve the stability of the European Monetary Union," it said.

"This reticence places greater pressure on Germany and France to stake out a strongly supportive stance towards the euro area, with more concrete and immediate effect than the proposals the two countries made last week, in order to shore up the single-currency project."

ANALYSIS - Costs of any Greek euro exit may be prohibitive

Sat May 7, 2011 2:42am IST
By Noah Barkin and Paul Taylor

BERLIN (Reuters) - The costs to a country of leaving the euro zone would be so high that many analysts think the bloc will do everything in its power to prevent an exit, even if that requires the richest members to keep bailing out weak states.

German magazine Spiegel reported on Friday that the Greek government had raised the possibility of breaking away from the 12-year-old euro area and reintroducing its own currency in talks with the European Commission and other member states in recent days.

The report was vigorously denied by the Greek finance ministry and officials from other member states. Sources did confirm that a small group of euro zone finance ministers were meeting in Luxembourg on Friday to discuss Greece and other pressing matters.

Leaving the currency union would carry huge economic, social, reputational and strategic costs for Greece or any other country. Greece would have to hive off its bank deposits from the rest of the euro zone banking system as it introduced a new currency, risking a run on its banks and huge disruption for its companies.

Banks across Europe would face losses on their Greek debt.

For the bloc as a whole, it would represent a humiliating setback because the common currency is broadly viewed as the culmination of half a century of European integration.

"To me the euro zone is a one-way street," said Gilles Moec, senior European economist at Deutsche Bank. "A breakup would have catastrophic consequences for the country that left. It would precipitate a run on the banks. I can't see how you do it in an orderly way."

Speculation about a possible euro zone breakup reached fever pitch in November of last year, but predictions that the bloc will fracture have come mainly from Anglo-Saxon sceptics.

Last summer, British economist Christopher Smallwood of consultants Capital Economics produced a 20-page paper entitled "Why the euro zone needs to break up" and U.S. economist Nouriel Roubini, nicknamed Dr. Doom, has said euro members will be forced to abandon the shared currency.

DEBT RESTRUCTURING RISK

Greece has struggled to meet the fiscal targets set out for it as part of its 110 billion euro ($160 billion) bailout from the European Union and International Monetary Fund.

Over the past month, markets have priced in the sort of default risk that was once unthinkable for a euro zone state and expectations have risen that Greece will have to restructure its 327 billion euro debt load while other countries will have to provide more aid.

Political opposition in northern Europe to giving Greece more money and rising anger within the country at the tough austerity measures the government has put in place have created a dangerous new dynamic that has convinced more experts an exit may conceivably happen, although probably not for years.

By reintroducing the drachma, the argument goes, Greece could sharply devalue its currency against the euro and keep official interest rates ultra-low, regain competitiveness, and tackle its debt problem without the political and social upheaval associated with years of austerity-fuelled recession.

"I'm not suggesting that these stories are right," said Jonathan Loynes, chief European economist at Capital Economics. "But we have said that we think it's quite likely that there will be some change to the membership of the euro area over the next four to five years and that one possible form will be the exit of a small economy like Greece.

"I don't think the idea is implausible at all."

But U.S. economist Barry Eichengreen, who authored a 2007 paper arguing that the single currency could not be undone, reaffirmed that belief last year as the Greek crisis deepened.

"Adopting the euro is effectively irreversible," he wrote in an article on the economics website Vox.

"Leaving would require lengthy preparations, which, given the anticipated devaluation, would trigger the mother of all financial crises," said Eichengreen, a professor at the University of California, Berkeley.

LEGAL NIGHTMARE

There is no legal procedure for leaving the euro zone and some economists argue that treaty changes would have to take place before an exit could happen.

"You would have to make it legal in order to leave," said Moec of Deutsche Bank. "You would probably have years of litigation on all the debt held outside the country."

Trade flows would probably be severely disrupted. Business costs would become unpredictable, inhibiting investment. Labour unrest and social strife would likely result as citizens faced mass unemployment, inflation and brutal public spending cuts.

That would far outweigh any potential boost to exports or tourism revenues from a devaluation.

"But what if the bank runs and financial crisis happen anyway?" Nobel prize-winning economist Paul Krugman asked on his blog last November.

An exit that is neither planned nor chosen but imposed by irresistible market forces would dramatically reduce the marginal cost of leaving the euro, Krugman contended.

But that economic logic may underestimate the political will that has driven European monetary union since its inception.

(Additional reporting by Emelia Sithole in London; Writing by Noah Barkin; Editing by Ruth Pitchford, sourced Reuters)

Libyan gov't seeks solution to crisis: Greek FM

Mon April04, 2011 16:16:23 |English.news.cn

ATHENS, April 4 (Xinhua) - The Libyan government is seeking a solution to the current crisis, said Greek Foreign Minister Dimitris Droutsas on Sunday evening, shortly after Greek Prime Minister George Papandreou held talks with Libyan acting Foreign Minister Abdulati Obeidi in Athens.

"Based on the Libyan envoy's stance it seems that the regime seeks a solution," said Droutsas, stressing that Greece supported from the start of the crisis the diplomatic solution and is always ready to contribute to efforts to restore peace and stability in the area.

Papandreou and Obeidi made no comments to the press, but Droutsas also announced that Libyan Colonel Muammar Gaddafi' s envoy will continue his trip delivering the message from Tripoli to Turkey on Monday and Malta.

Greece will inform its international partners regarding the content of the talks, added Droutsas, stressing that Greece supports the full respect of the UN Security Council' s resolution on the Libyan crisis which seeks the protection of civilians in the country.

Sunday' s meeting with Papandreou was held at a Greek bank' s conference hall in a northern Athens suburb after the request of Libyan Prime Minister Al-Baghadi Ali-Al Mahmudi during a telephone conversation with his Greek counterpart on Saturday.

Greece facilitates support operations of the military intervention in Libya and traditionally maintains good ties with Libya and other Arab countries. Earlier in March another Libyan envoy visited Athens for talks at the Foreign Ministry.

Greece raises 1.625 billion euros in six-month treasury bills auction

Tue, Mar08, 2011 21:38:55

ATHENS, March 8 (Xinhua) -- Greece on Tuesday raised an additional 1.625 billion euros (2.27 billion U.S. dollars) in six-month treasury bills at an interest rate slightly higher than that of the February auction, the Public Debt Management Agency reported.

The sale followed a new Moody's downgrade of Greece's credit rating on Monday, which fueled a strong reaction from the Greek government, as Athens accused international rating agencies of making unbalanced assessments of the ailing Greek economy.

PDMA secured on Tuesday an interest rate of 4.75 percent compared with 4.64 percent in the previous auction this year.

PDMA officials appeared optimistic on the result, noting that initially the target was to raise 1.25 billion euros (1.75 billion U.S. dollars), with some 30 percent of the investors being foreigners.

Greece has conducted a monthly short-term debt auction program since last year as a supplementary to the 110-billion-euro (153.7-billion-U.S.-dollar) aid package secured last May by the European Union and the International Monetary Fund to avoid bankruptcy and overcome a severe debt crisis by 2014.

Tags :bankruptcy, debt crisis, International Monetary Fund