Moody’s downgrades eight Greek banks, but finance minister dismisses fears of a default as ‘a distraction’
guardian.co.uk, Friday 23 September 2011 19.20 BST
Greece insisted last night that it remained committed to the terms of its €110bn (£96bn) bailout despite fears of the scale of losses banks face if it defaults on its debts.
After the finance minister, Evangelos Venizelos, told politicians he saw three solutions to the debt crisis, including writing off 50% of the value of Greece’s debt, officials moved to play down expectations of any imminent decisions.
Greece is the first eurozone country to seek a bailout. Calculations about the impact of a break-up of the eurozone put the losses for core European banks at €300bn, €630bn to peripheral banks and €150bn to the European Central Bank.
Analysts at Credit Suisse concluded: “We think the chance of a general break-up of the euro is just 10%: the cost of not bailing out the peripheral countries is higher than the cost of bailing out.”
Venizelos described the reports, which also included a scenario for disorderly default or the implementation of a second €109bn bailout plan agreed between Greece and its lenders in July, as a distraction. The Greek prime minister, George Papandreou, who said: “Because many things are being said and written, concerning scenarios, I stress one more time that we have chosen to implement the July 21 deal.”
On another day of volatile trading on global stock markets, Moody’s downgraded eight Greek banks due to their exposure to the country’s debt and the deteriorating economy amid concerns about the country’s ability to get the €8bn of bailout cash it needs to make debt payments next month.
French banks, which have lost 50% of their value in three months, ended higher amid speculation about a plan to help rid them of their most difficult loans on a scheme modelled on the US troubled asset relief programme implemented after the collapse of Lehman.
Data from the ratings agency Fitch suggests that US money market funds – which help banks find finance for the day-to-day operations – were are becoming more selective about lending cash to European banks. As of the end of August, the funds sampled by Fitch shows an 8% fall in exposure to European banks and 27% compared with the end of May. Comments by officials at the ECB also raised expectations that the bank would step in to offer liquidity to banks having difficult raising finance.