May 7, 2010

S&P says markets more pessimistic on Greece than it is

FRANKFURT - Standard & Poor's is not as pessimistic about the chance of Greek default as markets at the moment, but the EU/IMF aid package does not remove the risks facing the country permanently, a senior company official said on Wednesday.

Last week, S&P lowered its rating on Greek sovereign debt to BB+, making it the first major rating agency to drop it to junk category, but S&P's head of European sovereign ratings wrote in a guest column in daily Boersen-Zeitung that markets priced in a bigger chance of default than the agency.

"Before the financial crisis, we did not share the markets' optimism, now we do not share their pessimism," Moritz Kraemer wrote in the column, adding markets price in a bigger chance of default than the S&P rating of BB+ implies.

"A country rating in the BB category, based on experience, means a default probabality of 14 percent within next 10 years."

Kraemer said that as S&P had lowered Greece ratings before the crisis started and market confidence in the country started to erode, and its ratings had thus served as a stabilising factor.

He also said the EU/IMF aid package of 110 billion euros was no panacea, and that high refinancing costs add to the challenges the country is facing.

"With this, the probability rises that the political elites reach the conclusion that restructuring or payment adjustment would be the lesser of two evils," Kraemer said.

"The EU/IMF programme changes that only temporarily."

The country must work hard to regain market confidence and cannot expect that the loans by international organisations will solve all problems.

"There is no guarantee of success," Kraemer said.

Wed May 5, 2010 2:38pm IST


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