25th July 2011
The agency said it has downgraded Greece's debt ratings from Caa1 to Ca one step above default "to reflect the expected loss implied by the proposed debt exchanges."
"While the rating agency believes that the overall package carries a number of benefits for Greece – a slightly reduced debt trajectory, lower debt-servicing costs, as well as reduced reliance on financial markets for years to come – the impact on Greece's debt burden is limited," it added.
Here FT Alphaville gives a more detailed assessment of Moody's view. This may be the key passage – "The rating's developing outlook reflects the current uncertainty about the exact market value of the securities creditors will receive in the exchange. After the debt exchanges have been completed, Moody's will re-assess the credit risk profile of any outstanding or new securities issued by the Greek government. The announced EU programme along with the Institute of International Finance's (IIF's) statement (representing major financial institutions) implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 per cent."
Here Sharecast reports on this morning's stock market jitters about the downgrade led by French and German banking stocks which ultimately have exposure to Greece, Greece subsidiaries or at least exposure to other parties that may have exposure to Greece.
And in bad if not unexpected news, the Telegraph reports on the fact that Angela Merkel is now facing strong domestic opposition to last week's deal amid German fears that they will end up paying for it.
Merkel's critics include Frank Schäffler, finance chair for the Free Democrats and her coalition partner, who says the deal threatens "the castration of Germany's parliament" by moving budgetary power to Europe, while Bundesbank chief Jens Weidmann says that deal exposes Germany and other creditor nations to sizeable risks.
But one commenter on the Telegraph says the Germans are partly to blame for not spending more.
Yossarian10 writes: "The deficits of the PIGS are largely offset by the surplus of Germany. The assumption always is that this imbalance is solely the PIGS' fault. In my opinion it is equally the Germans for insisting on saving more than they earn. In fact they like it that way. There have to then be countries who spend more than they earn.