ATHENS – Joining a growing chorus of critics who say that a Greek exit from the Eurozone would be a disaster for the country, Moody’s Investors Service warned that it could also threaten the existence of the euro, a currency used in only 17 of the 27 European Union countries. “Were Greece to leave the euro, posing a threat to the euro’s continued existence, we would need to review all euro-area sovereign ratings, including those of the AAA nations,” the rating agency said of its rating system.
A Greek Eurozone exit would particularly affect the sovereign ratings of Cyprus, Portugal, Ireland, Italy and Spain, Moody’s said, other Eurozone countries with struggling economies, adding that Spain is the most troublesome case outside of Greece and could be drastically affected by a drop in market confidence if Greece leaves the Eurozone. Developments in Spain’s banking sector that may require a European rescue package have negative credit-rating implications for the sovereign currency, Moody’s said in a statement.
“Some (other) members of the European Union could also be affected, given the strong financial and trade linkages that exist between the members of the monetary union and the European Union,” Yves Lemay, a Moody’s sovereign credit analyst in London, told Reuters. Moody’s chimed in as the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) which loaned Greece $152 billion in a first package of aid and is readying a second for $173 billion more, warned that if parties opposed to austerity measures win in the June 17 elections that Greece could be forced out of the Eurozone, and its money pipeline shut off, further rattling investors and markets.
But Moody’s said if the next government, if there is one as the first ballot on May 6 was stalemated and the leading parties are still bickering over austerity and said they wouldn’t work with each other in a coalition, reaches an agreement with the Troika then the Eurozone would not be jeopardized, showing how critical the elections are.
The last polls allowed before the elections showed that the New Democracy Conservatives are locked in a neck-and-neck duel with the Coalition of the Radical Left (SYRIZA) whose leader, Alexis Tsipras, has vowed to cancel the bailout deals and opposes the austerity measures that came with them, prompting critics to say that would force Greece out of the Eurozone, back to the ancient drachma, and into complete economic collapse, bank failures, food rationing and shortages of fuel, medicine and other goods, which he dismissed as “scaremongering.”
New Democracy, along with the PASOK Socialists, have been blamed for creating the economic crisis and drowning Greece in $460 billion in debt by hiring hundreds of thousands of unneeded workers in return for votes. The two once-ruling parties, who are sinking in polls, supported the pay cuts, tax hikes, slashed pensions, reduction in the minimum wage and proposed firing of 150,000 workers demanded by the Troika.
Greece is rated just above default by Moody’s at C, while Standard & Poor’s gives it a CCC rating, similar to Fitch Ratings. Spain was expected to ask the Eurozone almost immediately for help with recapitalizing its banks, sources in Brussels and Berlin told Reuters. It would be the fourth country to seek assistance since Europe’s debt crisis began.
Lemay said if that happened that Moody’s would assess the program and terms of any help for Spanish banks “and then at that point conclude on whether there is a need to make any necessary adjustments.” EU officials and marketing analysts have said they fear that the so-called Greek Contagion could spread to other Eurozone countries.
(Sources: Kathimerini, Reuters)
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