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Fitch: EU Summit Decisions Represented A Step Forward
Fitch Ratings said that the initiatives agreed by European leaders at the European Council Summit last week have enhanced the policy response to the ΄Eurozone sovereign debt crisis΄.
However, it is disappointing that agreement on how to increase the effective lending capacity of the European Financial Stability Facility (EFSF) from EUR255 billion to EUR440 billion was deferred until June, according to the rating agency.
Moreover, the adoption of the ΄Euro Plus Pact΄ and the strengthening of the Stability and Growth Pact - if effective - enhance the Euro area policy framework and reduce the risk of severe macroeconomic and fiscal imbalances arising in the future.
Nonetheless, the EU Summit is unlikely to materially improve near-term financing conditions for peripheral EAMS (Euro Area Member states).
While the Summit represented a step forward in the policy response to the current crisis, only the combination of sustained economic recovery and fiscal consolidation will firmly secure confidence in the long-run solvency of ΄peripheral΄ euro members.
The creation of the European Stability Mechanism (ESM) as a permanent successor to the EFSF from July 2013 as a preferred creditor with a lending capacity of EUR500 billion should reduce the risks to sovereign creditworthiness arising from short-term ΄liquidity crisis΄ and provide EAMS with the time necessary to address macroeconomic and fiscal imbalances and regain access to affordable market financing.
Moreover, the recognition that private creditor claims on EAMS are not ΄collectively guaranteed΄, will help ensure more appropriate risk pricing and market discipline on euro area governments.
Finally, while the precise details of the collective action clauses (CACs) that will be introduced on new term debt issued by EAMS from 1 July 2013 will not be provided until year-end, there is little evidence to suggest that typical CACs materially increase the risk of default.
But while the ESM, including private sector involvement and CACs, provides the basis for effective resolution of future sovereign crisis over the longer-term, in the short-term it potentially increases the risk of sovereign default arising from the current crisis by making it more, rather than less difficult for sovereigns currently under stress to secure affordable medium and long-term financing from the market.
Consequently, the Summit has not enhanced the prospects for so-called peripheral EAMS to secure affordable market funding - crucial if they are to exit from emergency support and place public debt on a sustainable path and hence stabilise their sovereign credit profiles and ratings.
The outcome of the EU Summit is not the primary determinant of Fitch΄s current assessment of the sovereign credit profile and ratings of euro area governments.
Fitch sovereign rating opinions will continue to be largely driven by an assessment of the sustainability of public finances in light of medium-term economic prospects, it concluded.
(capital.gr)
Fitch Ratings said that the initiatives agreed by European leaders at the European Council Summit last week have enhanced the policy response to the ΄Eurozone sovereign debt crisis΄.
However, it is disappointing that agreement on how to increase the effective lending capacity of the European Financial Stability Facility (EFSF) from EUR255 billion to EUR440 billion was deferred until June, according to the rating agency.
Moreover, the adoption of the ΄Euro Plus Pact΄ and the strengthening of the Stability and Growth Pact - if effective - enhance the Euro area policy framework and reduce the risk of severe macroeconomic and fiscal imbalances arising in the future.
Nonetheless, the EU Summit is unlikely to materially improve near-term financing conditions for peripheral EAMS (Euro Area Member states).
While the Summit represented a step forward in the policy response to the current crisis, only the combination of sustained economic recovery and fiscal consolidation will firmly secure confidence in the long-run solvency of ΄peripheral΄ euro members.
The creation of the European Stability Mechanism (ESM) as a permanent successor to the EFSF from July 2013 as a preferred creditor with a lending capacity of EUR500 billion should reduce the risks to sovereign creditworthiness arising from short-term ΄liquidity crisis΄ and provide EAMS with the time necessary to address macroeconomic and fiscal imbalances and regain access to affordable market financing.
Moreover, the recognition that private creditor claims on EAMS are not ΄collectively guaranteed΄, will help ensure more appropriate risk pricing and market discipline on euro area governments.
Finally, while the precise details of the collective action clauses (CACs) that will be introduced on new term debt issued by EAMS from 1 July 2013 will not be provided until year-end, there is little evidence to suggest that typical CACs materially increase the risk of default.
But while the ESM, including private sector involvement and CACs, provides the basis for effective resolution of future sovereign crisis over the longer-term, in the short-term it potentially increases the risk of sovereign default arising from the current crisis by making it more, rather than less difficult for sovereigns currently under stress to secure affordable medium and long-term financing from the market.
Consequently, the Summit has not enhanced the prospects for so-called peripheral EAMS to secure affordable market funding - crucial if they are to exit from emergency support and place public debt on a sustainable path and hence stabilise their sovereign credit profiles and ratings.
The outcome of the EU Summit is not the primary determinant of Fitch΄s current assessment of the sovereign credit profile and ratings of euro area governments.
Fitch sovereign rating opinions will continue to be largely driven by an assessment of the sustainability of public finances in light of medium-term economic prospects, it concluded.
(capital.gr)
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