LONDON — A leading credit ratings agency warned on Monday that Greece would be considered to be in default if banks rolled over their holdings in the country’s debt as proposed recently in a French plan.
Standard & Poor’s said in a statement that two proposals by an association of French banks “would likely amount to a default” under its criteria because both options offer “less value than the promise of the original securities.”
S&P’s position could wreak havoc on Europe’s attempts to deal with the Greek debt crisis, especially if rivals Moody’s and Fitch come to the same conclusion. A so-called “selective default” could trigger insurance claims on Greek bonds and cause another bout of turmoil in the financial markets.
“A default is exactly what the European politicians want to avoid,” said Louise Cooper, markets analyst at BGC Partners. “I imagine there are a lot of phone calls being made between the European political elite and the bosses at S&P.”
The French banks had announced they were ready to help Greece by accepting a significant debt rollover as part of a second bailout for Greece. Germany’s banks later said they were also considering helping out on similar terms.
French and German banks are among the biggest holders of Greek sovereign debt — 15 billion euros and 16 billion euros respectively, according to the Bank of International Settlements.
The French finance ministry and banks BNP Paribas and Credit Agricole would not comment Monday on the S&P warning but an EU spokesman insisted that a rating of “selective default” would have to be avoided. Amadeu Altafaj Tardio, spokesman for the EU’s Monetary Affairs Commissioner Olli Rehn, said work on private sector involvement was ongoing and that there is no decision yet on its ex act nature.
In Berlin, German Finance Ministry spokesman Martin Kotthaus said “We have to look carefully to see what model we can find to have as few side effects as possible.”
A second bailout for Greece beyond the current 110 billion euro package is currently being discussed in the hope of being completed by September. The Greek government has conceded that it will need more money to make bond repayments because it’s not in a position to tap financial markets.