Athens - Greece would likely be in default if it follows a
debt rollover plan pushed by French banks, S&P warned on Monday, deepening
the pain of a bailout that one European official said will cost Athens
sovereignty and jobs.
European politicians and bankers had expressed confidence
last week that the French proposal would not trigger a default, but ratings
agency Standard & Poor’s said it would involve losses to debt holders, most
likely earning Greece a “selective default” rating.
“It is our view that each of the two financing options
described in the (French banks’) proposal would likely amount to a default
under our criteria,” S&P said.
French banks, major holders of Greek sovereign debt,
proposed voluntarily renewing some of the bonds when they fall due, but on
different terms.
S&P cut Greece’s sovereign rating to “CCC” last month, from “B”, on a view that any restructuring of the country’s massive debt load would count as an effective default.
The euro fell from around $1.4550 to a session low around $1.4510 after the latest S&P comment.
Derivatives industry body ISDA said before the French
proposal was released in late June that a voluntary agreement to roll over
Greek debt would “typically” not trigger payments on credit default swaps.
Greece was already facing an uphill struggle this week to
start the process of selling off state-owned assets and reform its tax system
to meet European Union and International Monetary Fund (IMF) conditions for bailing it out. The deep spending
cuts required under the loan terms have sparked angry protests on the streets
of Athens.
Eurogroup chairperson Jean-Claude Juncker said Greece will lose
sovereignty and jobs to meet those criteria, a comment that has enraged unions.
Any suggestion of foreign intervention in running the country is an incendiary
political issue that will make implementing reforms even tougher.
Public sector union ADEDY, which has launched crippling strikes and protests, reacted angrily to his comments.
ADEDY president Spyros Papaspyros said Juncker was out of
line: “Mr Juncker interferes in the internal affairs of a country, provokes
European rules and is an embarrassment for the country whose government
tolerates him.”
Juncker’s comments could trigger more of the anti-austerity
street protests that have roiled the country for months as Greece stays stuck
in its worst recession since the 1970s, with a youth unemployment rate of more
than 40%.
“The sovereignty of Greece will be massively limited,” Juncker told Germany’s Focus magazine in an interview released on Sunday. Teams of experts from around the eurozone would be heading to Athens, he said.
“One cannot be allowed to insult the Greeks. But one has to
help them. They have said they are ready to accept expertise from the eurozone,” Juncker said.
Easier said than done
Greece last week passed austerity measures worth €28bn and
promised to deliver €50bn in sell-off revenues by 2015, including raising €5bn
by the end of this year alone. On the list are public utilities whose sale is
sure to prompt public reaction.
“Greece now needs to push faster fiscal adjustments and
structural reforms,” said EFG Eurobank economist Platon Monokroussos. “On the
privatisation front, it is of (the) essence the government delivers fast results to
send a strong signal to financial markets.”
That is easier said than done.
The socialist government, which came to power on a social welfare platform, has yet to launch a single state sale in 18 months in power and must set up a privatisation agency within weeks to meet its target.
It must also start to sell state property, estimated at up
to €300bn but often entangled in legal complications.
“The €50bn target is not achievable,” said Constantinos
Mihalos, head of the Athens Chamber of Commerce. “Share values are very low
right now because of the recession.”
At the same time, Greece needs to deliver on pledges to reform
a chronically inefficient tax system that has relied too much on middle class
salary earners and let wealthy tax evaders off the hook, producing
disappointing revenues this year.
Finance Minister Evangelos Venizelos told Reuters in an
interview on Friday that Greece would for the first time tap private sector
expertise, but tax offices around the country are notoriously resistant to any
change.
“A greater effort is needed to rein in tax evasion and
broaden the tax base in a bid to bring the ratio of revenues to GDP (gross domestic product) closer to
euro area average and reduce expenditure and waste in the broader public
sector,” Monokroussos said.
Investors have feared that default by Greece would send
shockwaves through the world finance system, with some commentators saying such
an eventuality could call the whole eurozone into question.
Another hurdle is the law on a uniform pay scale for the
public sector, sure to cut further the salaries of civil servants who have
already seen their pay reduced by an average 15% as a result of a wave
of austerity measures to secure the €110bn bailout last year.
On Saturday, eurozone finance ministers approved a €12bn
loan Greece needs to avert default.
The IMF will meet on July 8 to approve the €12bn loan
tranche, which is expected to be handed over by July 15 and allow Greece to
avoid the immediate threat of debt default.
But the country still needs the second rescue package, which
is also expected to total around €110bn. EU officials will now look at how
private creditors can be involved voluntarily so that rating agencies do not
declare the rescue a “credit event”.