Ratings agency Standard & Poor’s cast new uncertainty on Monday over eurozone efforts to rescue debt-crippled Greece by warning it would treat a French bank plan for a rollover of privately-held debt as a default.
The threat abruptly ended a relief rally in stock and bond markets after Greece adopted a new, tougher austerity plan last week, prompting eurozone finance ministers to agree on Saturday to throw Athens a €12-billion short-term lifeline.Europe’s main stock markets diverged following the news, after bumper gains in Asia, with banks hit once again by concerns of exposure to the debt crisis.
Investors fear that a default by Greece, which has seen violent protests against austerity, would send shockwaves through the world finance system with some analysts saying it could call the whole eurozone into question.
While S&P’s statement did not deal a death blow to the complex French rollover plan — seen by critics as a bailout for creditor banks rather than for Greece — it highlighted the difficulty of arranging private sector involvement in a second rescue package.
“It is our view that each of the two financing options described in the (French banks’) proposal would likely amount to a default,” S&P said in a statement.
North European creditor nations, led by Germany, are insisting that banks and insurers must share the burden of any new financial support for Greece, which is estimated to need some €120 billion in new funding until end-2014.
French banks, major holders of Greek sovereign debt, proposed voluntarily renewing some of the bonds when they mature but on different terms.
S&P recently downgraded Greece’s sovereign rating on a view that any restructuring of its €340-billion debt pile — 150% of annual economic output and rising — would count as an effective default.
It, however, said it would assign a new rating “after a short time" once the debt rollover plan was actually implemented.