S&P Official Expects Greece to Default
A panel of financial experts assembled by Standard & Poor’s to examine the ongoing Greek debt talks said Tuesday that the nation will likely default even if it reaches a deal with private creditors to restructure or even write down its outstanding debt. John Chambers, head of sovereign debt ratings at S&P, added that the deal currently being negotiated would “in all likelihood” constitute a default.
The proposed restructuring of Greek debt aims to reduce Greece’s debt load to 120 percent of its economic output by 2020. As it stands, Greek debt exceeds 160 percent of its annual economic output. Even at the target level of 120 percent, however, the nation’s debt burden would still be very high, and ratings firms would keep its credit rating very low, according to Chambers, who is in charge of assigning ratings at S&P.
Chambers added that there is a strong likelihood that S&P will assign a “selective default” rating to Greek debt by this fall. Chambers’ comments were made during a panel discussion on the eurozone debt crisis hosted by Bloomberg Link in New York City on Tuesday. All three panelists invited to the discussion said they expect Greece to eventually default on its debts, but believe that a default by Greece will not necessarily lead to a default by other struggling eurozone nations, namely Italy and Spain. In addition, Chambers expressed belief that Greece will eventually be able to return to the private sector for financing, provided its government initiates reforms.
Officials from the European Central Bank, meanwhile, are downplaying the inevitability of a Greek default, saying that talks with lenders are nearing an end. According to a source familiar with the negotiations, the talks have hit a snag over the interest rate creditors are to be paid on new securities they will be given in lieu of Greek government bonds. Eurozone finance ministers said earlier this week the rate should be about 4 percent, under the terms of an agreement reached in October.