There is the old story about the boy who cried wolf too often. Similarly, the Eurozone clique of inept politicians continues to parade out “final” Greek bailout deals. The most recent one is a virtual carbon copy of one submitted months ago. It seems to no longer matter. Even the ratings agencies, far more of a lagging than a leading indicator, now understand that all the talk in Brussels of a real solution to the Greek debt crisis that also ring fences the other vulnerable Eurozone economies is just fantasy.
Proof this is the decision by Fitch in response to the latest Greek debt crisis plan. It cut its rating on Greek Sovereign debt further, from CCC to C, well inside the territory of junk bonds. Fitch added the following commentary: a default by Athens on its sovereign debt “is highly likely in the near term.”
The ratings agencies, which facilitated the 2008 financial disaster by rating subprime securities as grade A investments, have not been known for being out in front on warning of looming catastrophes. Now, however, with the Greek debt crisis raging, the ratings agencies are outdoing each other in releasing their downgrades. Moody’s is back with a downgrade on Greece, lowering it three levels to CA, just slight above an actual debt default.
What Moody’s and others are saying is that they have no faith in the second massive EU and IMF bailout plan, with it being funded by borrowing by other sovereigns that are also in difficulty, and involving bizarre formulae for debt exchanges which may or may not involve the private sector. As Moody’s puts it, “the announced EU program… implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent.”
S&P has weighed in on a bizarre scheme by the Eurozone crisis managers and French banks on supposedly enabling debt-stricken Greece to finance its insufferable fiscal burden. In the view of Standard & Poor’s, the French plan for banks to, in effect, roll-over private debt connected with the crisis will be seen by the ratings agency as an actual default.
With virtually every sane economist and observer believing that Greece is already insolvent and will inevitably default on its sovereign debt, it appears that the ratings agencies are now joining the choir. All that are left are the EU and IMF spin-masters preaching the falsehood that the debt crisis in Greece will be resolved without a default. What is tragic is that massive amounts of European taxpayers’ money is being poured down a rat-hole for no good purpose.
