22nd July 2011
The FT believes that the rating agencies will say that whatever the impact on bondholders and whatever means by which they are involved in the process – debt exchanges, rollovers or buy-backs – it will be regarded as the first default by a Western developed country for 60 years.
However this will be a selective default i.e. not all Greek bonds will be viewed by the agencies as having defaulted because not all bonds will be affected by the deal.
A couple of key points that may make this ‘default' different is that the European Central bank will continue to accept Greek debt as collateral and secondly that International Swaps and Derivatives Association is expected to rule that participation of private creditors in any agreement is ‘voluntary'.
The New York Times quotes Perry Mehrling, senior fellow at the Morin Centre of Banking and financial law saying: "This is the Europeanization of the Greek debt. Everyone prefers to have Europe as their counterparty rather than Greece."