Germany takes step back on debt rollover
S&P downgrade could matter only if it applies for a long time, bankers say
After the Standard & Poor’s warning was issued on Monday, a spokesman for the German Finance Ministry pulled a step backward, stating that no decision has been taken yet.
Martin Kotthaus said the model under which there will be private sector involvement “remains open.”
“We have to look carefully to see what model we can find to have as few side effects as possible,” he said.
Kotthaus added that there are a number of variations to the French and the German model under examination.
S&P dealt another blow to Greek hopes of a debt rollover yesterday, suggesting earlier in the day that the French plan’s implementation would result in the international rating agency placing the country in the “selective default,” or SD, category.
However, local bank officials suggest that even if that happens, domestic lenders will not necessarily suffer any dramatic consequences, provided that the SD status is short-term. They stress that the key point is not the rating but its period of application.
If SD applies for only a short period of time - for instance during the rollover of Greek bonds - then there would not be any serious problems in the funding of Greek banks.
In its intervention, S&P actually leaves open the prospect of a swift upgrade from the SD level as after the French plan is implemented it will reassess the country’s credit rating.
What is more, a Reuters report suggested that commercial banks and the European Central Bank have already started negotiations for the creation of a temporary mechanism that would ensure the unhindered funding of Greek lenders for as long as this country is in SD status.
Bank officials stress, however, that should Greece have this rating for long it will need a special agreement with the ECB to safeguard the cash flow and the stability of the local banking system.
ekathimerini.com , Monday Jul 4, 2011 (22:54)