Saturday, 21 May 2011

Which straitjacket and life jacket for Eurozone Greece?

Yesterday, I collected a few of my blog posts regarding the eurozone crisis and the issue of transparency on Grahnlaw Suomi Finland. The text is in Swedish, but most of the posts and some references are in English: EU-institutionerna mellan stumhet, PR och genuin öppenhet (Portugal och Grekland). (For the rest, you can try Google translation.)

While I am worried that the lack of quality information from the EU institutions is like a gift to demagogues and populists in the weak eurozone countries as well as in the stronger ones, the president of the European Council had taken a different tack the previous day. According to EurActiv, Herman Van Rompuy maintained that the messages given out are part of the problem, not a part of the solution: Special report: Van Rompuy warns leaders not to panic markets (20 May 2011).

As we have noted, credible and up-to-date information from the EU institutions about Greece is especially scarce. Not a word in the Ecofin conclusions on Tuesday.

Regardless of conflicting messages and Van Rompuy's admonishing words the markets follow their own instincts and reasoning.

Greece downgraded

On the Brussels blog (Financial Times), Joshua Chaffin notes that the credit rating agency Fitch Friday downgraded Greece's long term debt by one notch to B+, with a negative outlook. ”Soft” or not, the rating agency takes a dim view of any debt restructuring: Fitch joins chorus for another Greece bailout (20 May 2011).

However, Reuters speaks about a cut by three notches, but records the same B+: Fitch cuts Greek rating, warns over restructuring (20 May 2011).

According to Wikipedia, Fitch's credit rating B+ is in the category Non-investment grade, highly speculative. Three notches below the March rating BB+, Greece is now in the company of Zambia.

Le Monde makes the three-notch drop explicit, by mentioning both the previous BB+ and the new B+ grade: L'agence Fitch dégrade de trois crans la note de la Grèce (20 May 2011).

Bloomberg tells us that the yield on the Greek 10-year bonds rose to 16.6 percent: Fitch Cuts Greece to B+, Says Maturity Extension Is Default (20 May 2011). It is even clearer than before that Greece is outside commercial debt financing of its huge government deficits.

The next moves have to come from the government and society of Greece, followed by the conclusions of the EU-IMF mission, but we still have to wait for guarantees that the EU, including the ECB and the member states, will deliver a combination straitjacket and life jacket able to avoid financial meltdown.

Ralf Grahn