Standard & Poor's, a US-based credit rating agency, doesn’t believe that the EU’s financial aid to Greece will manage to stabilize the country’s economy in short-term perspective. That is why Standard & Poor's has recently cut Greece’s “junk” rating even further - 2 levels down - from “ССС” down to “СС”. It means that the rating agency’s experts are still convinced that Greece won’t avoid a default.
What can be the possible results of the rating cut?
According to the experts from the West European Association of Traders and Investors under , the Greek debt issue was resolved by the eurozone’s leaders during last week’s emergency summit. Moreover, the salvation program involves private bondholders, at the expense of whom the Greek debt is planned to be partially restructured. Nevertheless, these measures seem to have failed to reassure investors, as they still cannot trust Athens:
· The latest press release published by S&P’s contains a warning saying that the deal between Greece and private bondholders about extending the maturity date or lowering the yield will be treated as a “selective default”. As Greece is determined to conclude such a deal, the rating agency’s experts feel negative about Greek T-bonds and assume that the country’s default is highly probable.
· Moreover, the agency’s experts say that the Greek debt will remain high (130% of the GDP) at least until the end of 2011 while the country’s economic perspectives are uncertain.
Moody’s and Fitch:
In the meantime, on Monday Moody's Investors Service downgraded Greece’s long-term credit rating by 3 steps at a time – from “Саа1” down to “Са” - which corresponds to S&P’s “СС”:
· This level “Са” is the last one on the way to default
· The experts of Moody’s Investors Service say that the EU’s program of saving Greece implies a controlled default.
· They say that all the steps taken by the EU leaders are a temporary solution while private Greek investors may face considerable losses as the future cost of the country’s securities is still unclear.
· Fitch, another rating agency, forecasts that Greece faces a “restricted default”.
The eurozone’s major problem is how to reduce the Greek budget deficit.
In the meantime the Greek government keeps trying to reduce the country’s budget deficit and public debt on the EU’s request:
· According to Georgios Provopulos, Governor of the Bank of Greece, the authorities do their best to make the pace of spending reduction exceed the planned level in 2011. He assumes that only in this case investors will regain confidence in the Greek economy.
· The EU’s second plan to save Greece, which is expected to give the country a respite, implies a €109B loan. Private bondholders will participate in the program by exchanging the Greek bonds they own for new bonds with longer maturity date. Private lenders will also allocate €50B euro through allowing Greece to reduce its bond yields.
According to Georgios Papandreou, the Greek government is planning to attract 50 billion euro by selling off public assets. Moreover he promised to introduce extra income taxes from 1% to 5%.
In the meantime, some experts expect the country’s GDP to decline by 3.8%.
EURUSD perspectives:
EURUSD was traded in the neutral zone during today’s European trading session. The ECB’s council member Yves Mersch helped EURUSD to rally a little by expressing his confidence that with the lapse of time Greece will succeed in overcoming the debt crisis.
According to the Department of Masterforex-V trading system , the short-term perspectives of EURUSD look as follows:
The MF pivot 1.4376 is broken, the H4 wave is completed. The price is forming a correction against it.
If there is a bullish FZR at 1.4371, the price will start forming wave C M15.
The closest levels of resistance:
1.4408-38.2%
1.4432-50%
If there is a downward FZR at 1.4330, the price will initiate wave CH4.
Market Leader and would appreciate it if you could participate in a survey. Please, visit the Academy’s forum and answer the question given below:
How can rating agencies influence the eurozone’s currency and economy?
· They can make EUR collapse
· Their influence is insignificant
· Your own opinion
