June 21, 2011

Fitch Threatens Greek Downgrade if Bond Rollover Occurs

Even a voluntary rollover would equal default, rating agency says

As Greece faces an unpopular vote on Tuesday over even more unpopular austerity measures, Fitch Ratings kept up the pressure by saying that it would regard a voluntary rollover of bond maturities as a default and cut the country's credit rating accordingly.

The announcement comes, according to a Reuters report, as a further push on the Greek Parliament to approve tax increases, spending cuts, and the sale of government-owned assets as measures to help bring its soaring debt under control. Citizens have been demonstrating in the streets against approval, in some cases violently, and unions have struck against privatization and cuts. In addition, polls show that most Greeks would prefer to vote down the measures and renegotiate the terms of the bailout on offer from the European Union (EU) and the International Monetary Fund (IMF).

Andrew Colquhoun, head of Asia-Pacific sovereign ratings with Fitch, was quoted saying at a Singapore conference, "Fitch would regard such a debt exchange or voluntary debt rollover as a default event and would lead to the assignment of a default rating to Greece."

That determination could quell a discussion by EU ministers concerning the participation of private investors in the rescue package. Germany has been its staunchest proponent, with support from some of the northern countries, although it reached a deal with France not to require such measures as conditions for a further Greek bailout. Angry taxpayers have been demanding that losses be shared by private bondholders, and PIMCO's Mohammed El-Erian questioned over the weekend the transfer of loss liability from private creditors to European taxpayers.

Fitch's move underscores the decision on Monday by euro zone finance ministers to delay delivery of any rescue funds until after Greece's Parliament approves the austerity measures under debate.

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