Saturday, March 10, 2012

Moody’s declares Greece in default

Source: Press TV

Moody’s Investors Service has declared Greece in default on its debt, despite an announcement by the Greek government that a large number of private creditors had signed on to a debt exchange plan.

The US-based credit rating agency issued a statement on Friday, saying that “even as 85.8 percent” of the holders of Greek government bonds had agreed to the plan, the “exercise of collective action clauses that Athens is applying to its bonds will force the remaining bondholders to participate.”

“According to Moody’s definitions, this exchange represents a 'distressed exchange' and therefore a debt default.

“The exchange amounts to a diminished financial obligation relative to the original obligation,” the statement added.

Moody’s also said the debt swap deal “has the effect of allowing Greece to avoid payment default in the future.”

On Friday, the Greek government announced that a large majority of private creditors had signed on to a debt exchange plan expected to cancel about 107 billion euros (143 billion dollars) in Greek government bonds.

On February 24, Greece had formally offered private creditors the deal, which is expected to reduce the country’s debt of about 350 billion euros (469 billion dollars). The deal is part of the second bailout package for Greece approved by eurozone finance ministers during a meeting in Brussels on February 20.

According to the second bailout package, Greece will get loans of more than 130 billion euros (174 billion dollars). The first bailout, which was approved by Eurozone finance ministers on May 2, 2010, was worth 110 billion euros (147 billion dollars).

On March 2, Moody’s downgraded the credit rating of Greece to C from Ca and said the country’s debt exchange plan may “constitute a default.”

Meanwhile, in a statement issued on Friday, International Monetary Fund Managing Director Christine Lagarde said the IMF plans to offer Greece a loan worth about 28 billion euros (36.7 billion dollars).

Lagarde’s statement added, “Today I have consulted with the IMF’s Executive Board and on that basis, as discussed with the Greek government, I intend to recommend a 28-billion-euro arrangement under the Fund’s Extended Fund Facility (EFF) to support Greece’s ambitious economic program over the next four years.

“I welcome the cooperation of the private sector in participating in the debt exchange offer by the Greek authorities.”

“This is an important step that will dramatically reduce Greece’s medium-term financing needs and contribute to debt sustainability.”

“The IMF’s continued support would be part of an integrated package where all parties, the Greek government, its European partners, the private sector, and the Fund, would play their part to help the Greek people overcome this crisis and over time restore growth, thus contributing to broader global financial stability.”

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